Dáil Éireann debate -
Tuesday, 27 Feb 1996

Vol. 462 No. 2

Ceisteanna — Questions. Oral Answers. - Tramore (Waterford) Project.

Robert Molloy

Question:

19 Mr. Molloy asked the Minister for Tourism and Trade if he has satisfied himself with the veracity of the information he gave in reply to an adjournment debate on 3 October 1995; and if he has reviewed the circumstances surrounding the collapse of the Celtworld project in Tramore, County Waterford, resulting in considerable losses for private investors, the EU and Tramore Fáilte; his views on the allegations made on RTE's Prime Time programme on 21 February 1996; and if he will make a statement on the matter. [4509/96]

Mr. E. Kenny

As I have set out in detail in my response to an Adjournment Debate in this House on 3 October 1995, Bord Fáilte was legally contracted under Global Grant Agreements, concluded directly with the European Commission, to administer the EU funds available under the Operational Programme for Tourism 1989-1993 for private sector led developments such as Celtworld. I understand that last Wednesday night's "Marketplace" programme made a number of allegations regarding the Celtworld project, following which I asked Bord Fáilte for its views on the allegations made and to report back to me with its findings. The programme suggested that the existence of substantial contracts between associated companies of the major shareholders and Celtworld was not clear to business expansion scheme (BES) investors. This suggestion is incorrect as details of both material contracts in question were explicitly mentioned in the BES placing document and the contracts were available for inspection.

The programme contended that the value of land provided by Tramore Fáilte, a subsidiary of Bord Fáilte, was overstated, the implication being that this was due to a deliberate policy of Tramore Fáilte to extract considerable shareholding for little value. The land involved was professionally valued and this valuation was explicitly referred to in the BES placing document. I should add that the value of the land had no bearing on EU grant assistance as it was not regarded as eligible expenditure.

The programme also suggested that £100,000 of the expenditure of £265,000 incurred by Tramore Fáilte on behalf of Celtworld and for which Tramore Fáilte effectively received shares did not relate to the Celtworld project and that this was highlighted in an independent report to Bord Fáilte. I understand from Bord Fáilte that the issue was raised by an independent consultant appointed by it to review the project and rejected in their follow up by the Celtworld board as without foundation.

Business expansion schemes by their very nature involve a risk element. This was referred to at least three times in the BES placing document where the advice of solicitors, accountants, tax advisers or other appropriate experts was recommended to assist potential investors in their own commercial assessment of the proposal. People associated with Tramore Fáilte, the Bank of Ireland and MF Kent invested in this business expansion scheme. It is unlikely that they would have done so if they believed that the project was fundamentally unsound.

I am satisfied, following further consultation with Bord Fáilte, that the statement I gave to this House on 3 October 1995 is correct in all material matters. In the opinion of Bord Fáilte, Celtworld did not fail because of the issues raised on "Marketplace" regarding the internal transactions between shareholders. It failed ultimately because it could not attract the levels of business necessary for survival and profitability.

Mr. Molloy

Is the Minister aware of the serious public disquiet over the circumstances surrounding the Celtworld project at Tramore? Is he aware many people believe there is adequate justification for a public investigation into the circumstances surrounding this matter? Will he confirm that the construction of the building by Kent Brothers and the installation of equipment by Vectrovision was not put out to tender? Does he agree they invested in the company on condition they would secure the contracts? The Minister did not adequately explain why Tramore Fáilte sold land to Celtworld for £160,000 per acre when adjoining land was sold for £11,000 per acre? Why was there such gross over valuation of the land, thereby grossly over valuing Tramore Fáilte's investment in the project? The Minister did not adequately respond to the question on prior development costs which are listed in the accounts as initial setting up costs of £716,000. He confirmed that according to the consultant appointed by Bord Fáilte, £100,000 of those costs were not associated with the setting up of Celtworld. He said Celtworld denied this. Of course it would. What is the Minister's view? Why did it cost £110 per square foot to construct this building, making it one of the most expensive buildings in the country? It is alleged there was overcharging in respect of everything——

An Leas-Cheann Comhairle

The Deputy's questioning is overlong. I must ask the Minister to respond.

Mr. Molloy

Does the Minister accept the allegation that Kent and Vectrovision overcharged to show their investments in the project were greatly in excess of their true investments? Does he also accept they invested on the basis that they would secure the contracts? Surely the Minister cannot stand over the award of contracts on that basis.

Mr. E. Kenny

The Deputy asked a range of questions. I am aware of the concern expressed in the public media and elsewhere. I replied to a question on the Adjournment on this matter from Deputy Deasy some time ago.

Mr. Molloy

Not on these specific questions.

Mr. E. Kenny

Deputy Molloy will recall he was a member of Government at the time, although that does not implicate him. This was a private company and Bord Fáilte was legally contracted under global grant agreements concluded directly with the European Commission to administer EU funds available under the programme for private sector led developments, such as Celtworld. Since I answered a question on the Adjournment, financial accounts have been prepared and audited by Coopers and Lybrand of Waterford for the period up to 31 October 1995, which was very soon after the company ceased trading. These were accepted at an AGM on 15 December 1995 at which BES investors were represented by their trustees. It is also important to note that a BES involves a risk and the BES document for intending investors contains numerous references to this. The document states that the 2.5 acre site in Tramore for the project was acquired by the company from Tramore Fáilte Limited for a consideration of £400,000. It refers specifically to the fact that a new venture of this nature carries a number of significant risks which could have an adverse effect on the profits and working capital requirements and draws attention to the section on risk factors on page 13. The Deputy asked if a tender process was in place at the time McMahon Phillips constructed the building. There was not, because the cost of capital works for the project was below the threshold in the public procurement directive 89/440EEC, dated 10 July 1990 which was 5 million ecu or £3.887 million net of VAT. It was not necessary, therefore, to place an advertisement in the Official Journal of the European Communities. I understand, however, the building contract price was negotiated between Celtworld and McMahon Phillips and was based on a design and amplified cost plan prepared by a design team and on competitive tender rates. This was happening at the start of the operational programme for tourism under which EU funds could be drawn down. People were looking for new and imaginative concepts and this was one. The lesson to be learned from involvement in such projects is that a repeat of "newness" is required. The reason Celtworld ultimately failed was that it was unable to attract new and ongoing overseas visitor business.

Mr. Molloy

Does the Minister agree he should not quote this as a private company when Tramore Fáilte was one of the promoters and investors. The articles of association of Tramore Fáilte state that it cannot do anything without the written approval of Bord Fáilte. It cannot enter into contracts, dispose of assets or agree a sale without the approval of Bord Fáilte who is responsible to the Minister. A glib reference to a private company does not remove the Minister's responsibility for the expenditure of public funds and the manner in which this deal was handled. I am surprised he can stand over the fact that the building was not put out to tender. I am even more surprised that he can stand over all the dealings in which Celtworld and its investing companies were involved. I presume he is referring to the Bank of Ireland as representing the number of BES investors. Is it not surprising that it has subsequently transpired that a substantial number of the investors were in-house people engaged by their respective parties, such as the Bank of Ireland and Kent? A proper investigation into this matter is necessary to restore public confidence in projects which have Government approval and the support of Bord Fáilte. The Minister is treating this serious matter rather glibly.

Mr. E. Kenny

I did not make a glib reference to a private company. Bord Fáilte was contractually obliged by the European Commission to administer these funds under the operational programme for private sector led developments, such as Celtworld. The public tender system was not necessary under the procurement directive 89/440/EEC dated 10 July 1990. The average BES investment in Celtworld was approximately £5,000 which would have resulted in an average cost to those investors of approximately £2,500 because tax could be recouped under BES investment. There are clear references to the BES risk in the document on investment details to which I referred. For example, the directors advise that projections of future financial results are inherently subject to risk and that the actual results may not correspond with those projected.

These details were available to potential investors in Celtworld. The asset is still there and active progress is being made in disposing of it. Bord Fáilte retains its interest in Celtworld in so far as its continued use in the tourism area is concerned. Deputy Molloy will be aware from the reply given to an Adjournment debate that Bord Fáilte made a further contribution to Celtworld subject to serious rationalisation and streamlining of its business and potential to attract new and overseas business. These efforts failed but lessons have been learned from this type of development. Proposals in the operational programme which were regarded as new and imaginative at that time must obviously be looked at in a different light today.

Mr. Molloy

The Minister's replies are unsatisfactory.

An Leas-Cheann Comhairle

New regulations permit us to deal with the two remaining Priority Questions in the category of other questions.