I move: "That the Bill be now read a Second Time."
This is a relatively short but important Bill. Its purpose is to extend the limit on CIE's borrowing powers for capital and temporary purposes and to increase the corresponding guarantee powers of the Minister for Finance. The present statutory limits on CIE's capital borrowing power is £180 million and it is now proposed to increase that limit to £230 million. The increase proposed in the case of the board's temporary borrowing powers is from £20 million to £40 million. These increases are necessary because CIE will shortly reach the statutory limits of their existing powers.
CIE's capital expenditure is financed from the board's internal resources, mainly depreciation provisions, borrowings and Exchequer capital advances. These borrowing arrangements require my approval and that of the Minister for Finance who has power to guarantee them. CIE's total capital borrowings at 31 December 1983, will, it is estimated, amount to £175.5 million.
We have now entered into an unavoidable, necessary and welcome period of rapid change. For those involved in CIE and for those of us for the time being assigned to guide its fortunes this should not be a time of combat but a time of cohesion. The inevitability of change is such that the unwise alone will seek to resist while the wise will seek to fashion it.
The inevitability of change is indicated by many things, but most of all by the galloping deficit, which simply has now exceeded what the Exchequer, that is, the taxpayer can afford to pay. Last year it broke new records at £109.2 million — more than 33 times what it was in 1969 and represented 12 per cent of the current budget deficit.
We have already put a halt to that gallop and for the year now coming to a close the deficit should be around £104 million, which will be the first reduction achieved in 15 years. That is just for openers.
We have also, in a new policy departure for CIE in June, announced inter alia, that
(i) one-third of what they do is considered social and consequently one-third of their expenditure should be their subvention;
(ii) their expenditure must be reduced by 12 per cent in real terms over five years, and therefore, their subvention will reduce in real terms over five years by at least 12 per cent.
(iii) the subvention will be paid above the line so profits become a possibility from 1984 onwards;
(iv) a capital committee have been established to ensure all future proposals for major capital investment will be properly financially appraised before decisions are taken.
These changes, although very significant, are only a start and we must now address ourselves to the possibility of advantageous structural changes and be guided in general, if not in detail, by McKinsey.
The problem with McKinsey is that while the prognosis indicated the different problems in CIE and their relative order of magnitude he is short on cures. For instance he says about the railways, which contribute two thirds of the deficit, that there are four options: (i) keep them; (ii) reduce them; (iii) expand them; (iv) close them.
He ruled out (ii) and (iii) and says (i) and (iv) will cost the economy more or less the same in over ten or 25 years span. However direct costs to the Exchequer would be considerably less if the railways were closed.
Two questions, therefore, arise:
(a) can we afford to have the railways?
(b) can we afford not to have the railways?
Voluminous bodies of opinion will answer "no" to both those inherently contradictory questions. Which of these is right? That is the £70 million question which no longer can be avoided and must now be faced.
In addressing themselves to McKinsey, which they will presently do, the Government will be weighing up all economic, social and — let us face it — political issues involved. One of these issues is the Howth-Bray electrification about which much has been said and written — much of it inaccurate — in the recent past.
This scheme has no chance of paying for itself even if passenger numbers reach the most optimistic forecasts. It would now apperar that electrification will add around a further £20 million per year to CIE's problems, at least in the early years.
Having said that, I want to emphasise that there have been no significant cost overruns. The latest estimated cost is £114.3 million. This is made up as follows:
|
Original Estimate, £46.4 million in March 1979, adjusted for inflation and increased VAT |
£85.68 million |
|
Capitalised interest charges |
£28.62 million |
|
Total |
£114.3 million |
CIE, when proposing the scheme, did so on the basis that it would be financed entirely by Exchequer grants. These would not have had to be repaid nor would they have imposed a liability for continuing interest charges on the board. Initially this was the basis on which the Government of the day approved the scheme. However, within a matter of weeks they decided that the scheme should be financed on the basis of loan capital. The decision to convert from grant financing to loan financing effectilvely added £28.6 million to the capital cost and by rendering the board liable for the ongoing annual interest charges put an entirely different complexion on the cost aspects.
This fundamental change in the financing arrangements pinpoints a weakness in the approach not only to the Howth-Bray scheme but to rapid rail transit in general. It is simply unrealistic to expect that the Exchequer could finance projects of this nature on a grant basis. That would be possible only in a situation where conditions of continuing and sustained budgetary surplus existed. As we all know only too well that is not the case.
When the Howth-Bray electrification scheme was first proposed in 1977 passenger carryings on the line had been showing a continuing upward trend. They had increased from 12,600 passengers per day in 1970 to some 32,400 per day in 1979, the last year in which commuter services were not being disrupted by construction works. By the late seventies the rolling stock and equipment in use on the line had reached the end of its useful life and the question of its replacement had become a matter of some urgency. CIE proposed the electrification of the line, which was in accordance with the recommendations of the Dublin Rapid Rail Transit Study.
Subject to certain assumptions it was envisaged that electrified services would meet direct operating costs and that depreciation costs would be more than offset by indirect user benefits. Electrification had the added advantage that it was part of the recommendations in CIE's Rapid Transit Study which envisaged a city-wide system linking the new western suburbs via an underground network in the city centre with the Howth-Bray line. While the decision to electrify did not imply a commitment to the full rapid transit system it did prevent it from being automatically ruled out as a posibility if a fully satisfactory case could be made for it in the future.
The then assessment of the energy situation was also a factor since an electrified system would not be dependent on a single source of energy. There is little to be gained at this stage in debating whether the project at its original estimated cost of £46.4 million represented good value for money. That is an issue that can be decided only on the basis of the perceived value of indirect user benefits and the long-term worth of this substantial addition to infrastructure.
I can say, however, that I would not today be prepared to seek Government approval for a project of this nature put forward in the same way as the Howth-Bray project. This must not be taken as criticism of CIE but rather of the lack of suitable appraisal of such proposals by Governments in the past. Within my own Department I have now a permanent capital committee to monitor and appraise all major capital expenditure proposals in CIE in the future.
Daunting as the immediate prospects are for the economics of the service, I am hopeful that when introduced next spring it will bring about a substantial improvement in the existing service in terms of frequency, speed and efficiency. Daylong services are envisaged, serving 25 stations, with trains operating at five-minute intervals during peak periods reducing to 15 minutes off peak. CIE intend to extend the catchment area of the railway line by the provision of feeder bus services to selected stations. The board estimate that by 1987 passenger numbers will increase to about 80,000 per day, more than twice the previous best average daily carryings.
Another major element in CIE's capital programme is the acquisition of 124 carriage units for mainline passenger services. The new units consist of 94 standard carriages, 15 catering cars and 15 generator vans to be assembled at the Inchicore works in Dublin. With the new carriages CIE will be able to provide mainline rail facilities of an acceptable standard of comfort and convenience. It is expected that the first carriages will be available for service early in 1984. The capital cost of the project at current prices is estimated at about £52 million including VAT of approximately £8 million.
The renewal of the board's city and provincial bus fleets is also continuing. Deputies will recall that bus deliveries from the factory at Shannon commenced in 1981, and I am sure that all Members of the House will have seen the new buses on the move throughout the country. By the end of this year CIE will have taken delivery of 104 single-deck buses and some 366 double-deck buses at a total capital cost of about £68 million.
Almost since the inception of production at the Shannon plant Government have been concerned about the form of the relationship between CIE and their Shannon supplier. This concern springs from the fact that the Shannon firm are basically dependent on CIE for orders for buses. Questions arise as to whether the manufacturing arrangements represent good value as far as CIE are concerned. As an indication of their concern Government commissioned a firm of consultants to carry out a study of the relationship between CIE and their supplier some months ago. Meantime, the ownership of the Shannon firm changed and as a consequence Bombardier no longer have an interest in the operation. Manufacture of buses is continuing at the plant, however, under interim arrangements. I have asked CIE to provide me with their proposals in this respect so that I can submit them to Government in conjunction with the consultant's report. I hope to have CIE's proposals shortly.
In addition to the projects I have mentioned, the board's signalling and normal capital programmes are continuing. The main sources of funding for the latter tend to be Exchequer capital advances and depreciation provisions. The increased borrowing and guarantee arrangements provided for in the Bill are to enable CIE to continue their capital programme as described. The new limit of £230 million in respect of capital borrowings, is an increase of £50 million in the existing limit.
Now to turn to the temporary borrowing question. Under section 5 of the Transport Act, 1981, CIE may, with my consent and that of the Minister for Finance, incur temporary borrowings of up to £20 million. This borrowing power is used by CIE to respond to short-term cash shortfalls. With Government approval, this borrowing facility has also been used to finance the difference between total subvention and deficit, where the total subvention made available in any one year has been insufficient to meet the board's deficit on subventible activities.
Over the past couple of years CIE's deficits have exceeded the annual subventions which the Exchequer has been able to make available to the board. 1983 will fall into this category, but in exceptional circumstances. When the Estimates for 1983 were being prepared in 1982 the then Government put into the Estimates a figure for £86 million compared with an outturn of £109.2 million in 1982. This was clearly an unrealistic figure from the start which had no basis.
During the course of the year when deciding their now approach to CIE for the next five years the Government also made realistic provision for the current year. It was decided that CIE should be asked to live within a deficit of £99 million plus the cost of the public service pay round which, we now know, comes to £5 million. I am glad to report that CIE can live within £104 million in 1983. Although this is a reduction of £5 million on last year it is £18 million more than provided for in the Estimates. Therefore, we provide in this Bill for the temporary borrowing limit necessary to bridge the gap. The deficits in excess of subvention since 1981 are symptomatic of what had become a very substantial problem. Actual State subvention was £85 million in 1981, £96 million in 1982 and £86 million in 1983, a total of £267 million, a sizeable amount of State funding by any standard.
This year, 1983, marks an important turning point in the affairs of CIE as regards State subvention. In 1969-1970 CIE's deficit amounted to £3.2 million. Had the increase in deficit been confined to the rate of inflation the board's 1982 deficit would have amounted to some £17.3 million. The deficit for 1982, however, as I have said, amounted to more than £109 million. If this rate of increase were to continue I do not see the Exchequer being able to provide the huge sums that would eventually be required for public transport. Indeed the experience of recent years underlines the dangers of this approach.
When I became Minister for Transport late last year the subvention for CIE for 1983 had already been fixed as I have said, at £86 million. In the review which took place immediately after the Government came into office it was clear that there was no possibility of increasing the subvention beyond that level even though it was recognised that the board's deficit would exceed the subvention. In the circumstances the only real alternative was to let CIE carry the shortfall by temporary borrowing. The Government, therefore, decided to promote legislation which would enable CIE to cover the shortfall in that way. As I mention earlier, that shortfall is expected to work out at about £18 million.
In reviewing the position for 1983 and future years the Government saw that a new approach was needed for the fixing of the CIE subvention so that the level of State support could be matched by what the Exchequer could afford. At the same time it was clear that a massive reduction in State subvention could not be achieved overnight without serious adverse repercussions. It was against this background that I tackled the problem.
With the approval of the Government, I introduced a package of measures in June last to bring about a substantial improvement in CIE's position. The main features of that package were first, a formula for the settlement of the CIE subvention, which is now determined as 50 per cent of CIE revenue or 33? per cent of expenditure whichever is the lesser; in other words, every £2 earned by the board, in principle, attracts a State subvention of £1, subject to the constraint of the one-in-three on the expenditure side; secondly, subvention moneys will be paid to CIE from 1 January 1984 as revenue, or "above the line" in accountancy terms; thirdly, CIE are required to achieve a reduction of 12 per cent in expenditure in real terms over five years from 1984, a vital element in getting CIE finances under control; fourthly, and as briefly mentioned earlier, the establishment of a permanent capital committee with representatives from my Department, the Department of Finance and CIE to appraise and monitor CIE's capital expenditure.
The subvention formula is a big step forward in the Government's relations with CIE. It tells CIE quite clearly the type of performance that the Government expect in the years immediately ahead. In matching the level of subvention to the company's performance we are providing the type of corporate incentive necessary to reverse the deficit trend of recent years. This, with payment of the subvention "above the line", should help to create the conditions where management and staff can be motivated to perform in a more commercial manner.
The formula is also a discipline on Government. Subvention will no longer be decided on an arbitrary basis but must be consistent with the formula. The formula itself is not perfect and may need to be refined but it is a pragmatic basis for measuring Government's contribution to the social aspects of CIE services in the medium term. Under the new system CIE have the opportunity to operate profitably after bringing the subvention to account. This incentive is, I believe, a key to motivating substantial improvements in the standard and quality of the board's services.
It is interesting that in the year of this new approach CIE's deficit will for the first time in 15 years be less than that for the preceding year. The projected 1983 deficit of some £104 million will be an improvement of £5 million in cash terms on the board's deficit of £109 million for 1982 which, when inflation is taken into account, is an improvement in real terms of approximately 14 per cent.
A factor that must not be forgotten when considering CIE problems is that governments in the past have often exacerbated such problems. Examples of this include withholding of increases in fares and rates and the involvement by government in purely commercial or operational aspects of the board's affairs. I hope that under the formula arrangements this practice will cease, thus allowing CIE to manage their affairs in as commercial a manner as is possible. It is my intention to discourage all unnecessary political intervention in the day-to-day affairs of CIE. If public representatives have problems about services or operations the most efficient way of dealing with them will be to go direct to CIE. I have, therefore, decided to discontinue the practice of receiving deputations about administrative matters and the like in CIE. CIE, I am sure, will welcome that development and will be able to demonstrate the responsibility with which they exercise their functions.
As I said recently to the board, and indeed publicly, there are areas in which there can be substantial improvement in performance by CIE. One of these is in the industrial relations area. The numbers employed in CIE, the range of skills, the spread of locations and the variety of conditions under which the staff operate are factors which influence CIE industrial relations. However, all staff in CIE should realise the damage that is done not just by major strikes but even by relatively small incidents involving very few people over minor issues.
Absenteeism is another factor to be regretted. No one should forget that CIE are in the marketplace to sell their transport products. Time and again the consumer has shown that product reliability is high among his priorities. In CIE's case, every industrial relations incident damages the board's reliability and credibility, which inevitably increases costs, loses customers and revenue and in the long run defeats the interests of the workers themselves. With the high cost of private motoring in Ireland, I believe that CIE have a vast potential to win many more customers. However, this potential can be tapped only if morale improves and the board show in the marketplace that their services are above all else reliable and efficient.
Deputies will have seen in the media the recent announcement regarding the appointment of a new chairman to take over at the helm in CIE on 1 January next. I would like to take this opportunity to express the appreciation of the Government and my own thanks to Dr. Liam St. John Devlin for the service to the State which he has given as Chairman of CIE during the last ten years. Earlier this year Dr. Devlin had informed me that he would not wish to continue in his post beyond the end of the year. The chairmanship of CIE is an extremely onerous position which carries an exceptionally heavy burden, and our thanks are due to Dr. Devlin for the dedicated manner in which he has discharged this responsibility during the past decade. I should also like to welcome Mr. Paul Conlon as the new executive chairman of CIE and, on behalf of this House, to wish him well.
As it approaches the anniversary of my appointment as Minister for Transport I can say that since my appointment I have had contact, mostly personal contact, with almost every representative interest in the field of inland transport embracing carriers and users as well as outside experts, academics and commentators. During that year, I have taken steps to get some fundamental grasp of the nature and problems of the inland transport industry and especially of the troubled area many of us have, unfortunately, come to associate with CIE. These contacts have been of immense value to that end but some of them have also been disappointing. This has been for the very simple reason that some people I have met based their positions on very narrow and subjective views while showing no grasp of the global problems and no potential for an imaginative approach to the problems they identify. I think there has been a lot of casual thinking on the subject of transport and that the time has come when all who are really concerned will have to review their thinking habits. The magic solutions to transport problems will still remain elusive, but there will never be progress if we all remain entrenched in our views and muddled in our thinking.
In this debate I should like Deputies to keep uppermost in their minds that the obligation of the Minister for Transport is, first, to the taxpayer so that the liability for CIE is reduced to an acceptable level and, secondly, to transport users so that they will have a service of an acceptable level but at a price which, so far as possible, is acceptable also. Already in 1983 considerable progress has been made without substantial cutbacks in services or redundancies. The four essential improvements may be more difficult, but I am confident that if all minds are applied in the way I suggested in my opening remarks we will achieve results satisfactory to all parties concerned.
I commend the Bill to the House.
