Mary Harney
Question:10 Miss Harney asked the Minister for Transport, Energy and Communications the current position regarding the proposed strategic alliance partners for Telecom Éireann; and if he will make a statement on the matter. [14160/96]
Ceisteanna—Questions. Oral Answers. - Telecom Éireann Strategic Alliance.
Batt O'Keeffe
Question:24 Mr. B. O'Keeffe asked the Minister for Transport, Energy and Communications whether a decision has been made on a strategic partner for Telecom Éireann. [14176/96]
Seamus Brennan
Question:2 Mr. S. Brennan asked the Minister for Transport, Energy and Communications if he will reverse his decision to sell off 20 per cent of Telecom Éireann for the price of £180 million, which is equivalent to not much more than half the value of the company; and if he will make a statement on the matter. [14479/96]
I propose to take Questions Nos. 10, 24 and 2 together.
Last week I announced that the Government had decided to choose KPN Telia as the strategic partner for Telecom Éireann. Detailed discussions have now commenced with a view to signing a deal within the next 30 days. I am delighted with the outcome of this process.
We have a deal which aligns the strategic and financial interests of the State, the company and the strategic partner. Above all we have a deal which is good for the Irish consumer and Irish business. In partnership with KPN Telia, Telecom Éireann can accelerate its transformation into a modern telecommunications company which is totally focused on the needs of its customers. It is nonsense to suggest that this deal should be reversed. It makes sense financially and strategically. It has received a broad welcome at home and abroad, from Telecom Éireann's employees, business interests and financial experts.
This deal represents excellent value. The facts speak for themselves. There are no less than 85 separate strategic initiatives which have been agreed between Telecom Éireann and KPN Telia. These initiatives incorporate over 100 man years of management input by KPN Telia. They will provide a comprehensive strategic support programme which will consist of technical support, expert and managerial assistance, software and systems improvements across all business categories.
Nobody can question the ability of the KPN Telia consortium to deliver on these initiatives. They have proven track records in their home markets and are backed by their global Unisource partnership.
At the outset our first priority was to find a partner with the right strategic fit. This has been achieved in the context of a financial deal which, in addition, represents excellent value for the State. In addition to the initial £183 million which will be paid for a 20 per cent stake, the State will also receive a further £200 million for the exercise of an option on a further 15 per cent of the shares.
Finally, through a profit-sharing formula the State will capture a 60 per cent share of the gain on the strategic partner's investment over a certain threshold and this will apply to the entire stake purchased by the partner including the initial 20 per cent stake. It is expected that, based on the likely business performance of the company, this deal will produce overall proceeds to the State in excess of £500 million.
I thoroughly refute the suggestion by Deputy Brennan that the price of £180 million is not much more than half the value of the company and challenge him to establish his assertions on value. He has focused on only one element of the pricing and has got even that figure wrong.
Less than one year ago the Government set out the key objectives for the telecommunications sector and the alliance process. I am happy to say that we now have a deal which fulfils these expectations and which I am certain will lead to a top class telecommunications sector in terms of price, quality and availability.
I wish to draw the attention of the House to the fact that one of these questions is a priority question. Are we dealing with it in that way?
We are not dealing with it in that way. The Standing Orders relating to priority questions after a certain stage prohibit Question No. 2 being taken as a priority question. The fact that it is being taken with Question No. 10 is an opportunity to deal with it.
There have been many questions about this deal, but the biggest question in my mind is how on earth the Minister got it past the Democratic Left and Labour parties. No doubt the Minister will not answer that here. Perhaps he would answer it in some other forum.
I would like to respond to the Minister's kind invitation by way of some questions about the figures. Does the Minister accept that this deal has dramatically short-changed the Irish taxpayer, that the price he achieved, £183 million for 20 per cent, is a derisory figure, that it is a betrayal of the taxpayers and a selling off cheaply of the investment of over £1 billion by the Irish public in Telecom Éireann? Does the Minister further accept that the public were not given the opportunity to buy one share, although the Minister has sold 20 per cent of Telecom Éireann to foreign telecommunications companies, some of which are owned by financial institutions? Does the Minister accept that £200 million or £300 million of taxpayers' money, investment and pension fund money is abroad in foreign telecommunications companies, that we own more of British Telecom than we are allowed to own of Telecom Éireann? Does the Minister accept that Telecom Éireann's profit last year was almost £200 million? Does the Minister know that one can buy a telecommunications company for ten times its profit? Ten times £200 million is £2 billion. The price the Minister achieved was not £2 billion; it was the equivalent of £900 million. In response to the Minister's invitation I put it to him that ten times profit is the normal price for telecommunications companies. The Minister has achieved less than five times profit.
Does the Minister accept that we started out with ten players and ended up with one bid, that the bid the Minister accepted is derisory and an insult to the taxpayer? I am amazed that the Minister's colleagues in Government stood back and allowed him to sell off 20 per cent of our finest State company for a miserable £183 million. The figures relating to the future are conditional on performance and are meaningless.
I am disappointed at the Deputy putting forward the same old jaded arguments he has been touting in the public arena during the past few days.
I will continue to do so.
The Deputy has suggested that the value of Telecom Éireann should be based on a multiple of ten times the operating profit. This is not the normal measure used in these transactions. Operating profit does not take interest payments or tax into account. The actual profits of Telecom Éireann for the year 1995-96 are £66.4 million. If the Deputy is saying that the value of Telecom Éireann should be a multiple of ten times profit, this yields a valuation of £660 million.
The Minister could have sold Eircell for the price he got for the whole lot.
Even by the Deputy's own criteria he got the figures wrong.
I am amazed Deputy Stagg should put up with this nonsense. He would not have let Fianna Fáil away with it.
This figure is well below the implied valuation arising from this deal.
It was not a sell-off — it was a sell-out.
The price to be paid for the initial 20 per cent stake alone, without taking into account the price for the 15 per cent option and the State's share of the excess return to the strategic partner, values the company in excess of £500 million. This has been raised here on a number of occasions. It was a policy decision by the last Administration of which Fianna Fáil were part.
That was five years ago. The market has changed.
It was my predecessor, a Fianna Fáil member, Deputy Brian Cowen, who brought forward the proposal for a strategic alliance.
It is the Minister who has sold it.
Let us not have this continuous interruption.
It is a scandalous decision.
The Chair should not be disregarded.
It fell to me to put the mechanisms in place to allow for the competition to be brought to a conclusion. During this process the Deputy has been a prophet of gloom. He said I would not be able to get a partner for Telecom Éireann.
As it turned out, I was right. It is a sell-out.
He repeatedly stated it in this House. He publicly attacked the competence of the two bidders and did everything he could to undermine the process and to turn people away from Telecom Éireann. The reality is that the Deputy was not interested in Telecom Éireann, its future or its employees.
The Minister gave it away.
The Deputy hoped I would fail in my policy objective——
The Minister got one bidder.
——to find a strategic partner for Telecom Éireann so that he could orchestrate political advantage for his own party, Fianna Fáil. The Deputy has failed miserably. The facts speak for themselves.
It is a sell-out.
It is obvious the Deputy is disappointed I put forward an outstanding deal under very difficult circumstances——
The Minister could have got that money for Eircell alone.
——a deal that has met with resounding approval from my Government partners from both the Labour Party and Democratic Left.
They are very silent on it.
The Deputy should be more magnanimous, more gracious. Instead of whinging, moaning and groaning, he should face up to the reality that I have delivered what Fianna Fáil in Government failed to deliver, a strategic partner for Telecom Éireann, an exceptionally good deal that will bring Telecom Éireann and its employees into the future and prepare them for a competitive environment.
Nonsense. The Minister gave it away.
The Minister will agree that when one controls the telecommunications industry and the telephone system in this modern age, one controls an industry which has the capacity to make huge profits. Potentially this is one of the State's most profit generating companies. My party has examined the agreement and does not think the Minister completed a good deal on behalf of the Irish taxpayer and consumer. We will have more to say about that later when we examine the details more thoroughly because there seem to be many commitments down the road in this contract.
Will the Minister elaborate on the condition which locks out any other private investor in the Irish telecommunications industry over a period of years? What will be the effect of that? Will the Minister tell the House what he has agreed and give us details of the terms of this contract which relate to the pension liabilities of Telecom Éireann?
I understand that the Opposition has a role and function to fulfil, but to nit-pick about a deal which has been universally accepted as an exceptionally good one——
We are sorry to bother the Minister.
Telecom Éireann, the Communications Workers Union and IBEC all believe it is a good deal. Independent financial experts believe it is a good deal.
After being briefed by Telecom.
It has been generally accepted as an exceptionally good deal achieved under difficult circumstances.
No, it has not.
I have on a number of occasions in this House outlined the Government's objective and policy initiative in this area. It was to find a strategic partner for Telecom Éireann that could give the business community and industrialists here access to a modern, broad-ranging telecommunications network. We are at a disadvantage because we do not have that access with the result that industry and business is not competitive.
The strategic benefits available to Telecom Éireann arising from this deal are exceptional. The partner will transfer substantial operational and strategic benefits to Telecom Éireann as part of the new arrangement. These will accelerate the transformation of Telecom Éireann over the coming years into a customer focused operator playing a role on the global telecommunications stage. PTT/Telia will become actively involved with the management of Telecom Éireann to ensure that the benefits are delivered.
We did not need them for that.
They are committing a significant level of manpower and technical resources for this purpose. Overall the transfer comprises 85 separate initiatives and will offer 100 man years of technical and managerial expertise.
That does not answer the supplementary question I asked.
It is a response to part of what the Deputy asked. The comprehensive package of measures will consist——
The Minister is just reading a prepared script.
——of senior manager transfers and access to experts in various areas. It will mean access to software, physical integration of international networks and joint development activities. This package is accepted by people who are knowledgable in the telecommunications sector as being good for Telecom——
What does it say about the lock out of future investors?
——because skilled manpower and leading edge technologies from competitive telecommunications markets are now available to it.
The Minister has a weak case if he cannot answer the question.
I call Deputy Batt O'Keeffe.
My question was not answered.
That is a matter for the Minister. The Deputy should resume his seat.
The answer bears no relationship to the question.
I call Deputy Batt O'Keeffe. I will call Deputy Molloy again if he wants to put his question and I am then moving on to other Deputies' questions. We cannot have anything but a fair allocation of time.
The Minister has a weak case if he cannot answer the question.
I ask the Minister to think back to 18 months ago when a number of senior players had an interest in taking a stake in Telecom Éireann. The price being quoted at that time was £450 million. It was reduced to two suitors, one of whom could only be described as a regional operator. The Minister has received £183 million, which is one third of the price available two years ago. It must be seen as a let down for the Exchequer and the workers of Telecom Éireann that the Minister's intransigence and delaying tactics allowed a situation to arise where we really had only one suitor.
In light of what was available, the price may look fair. However, one can also compare it with what KPN paid to the Czechs. If one compares the profits of the Czech telecommunications company with ours, one finds that we really got very bad value for what is a strategic national asset. Given that we will have to pay £220 million into the——
The Deputy is being over long.
——Telecom Éireann pension fund at the end of the day the Government has not fared well.
It is remarkable that people whom the Deputy said were unhappy with the deal have publicly welcomed it. That puts that point to rest.
Not all of them.
I refer the Minister to analysis carried out by Nick Mulcahy in the Sunday Business Post which clearly showed that——
The Deputy had an opportunity to put a lengthy question to the Minister. I want to facilitate other Deputies.
The Minister is badgering me.
I have not interrupted the Deputy and I ask him to give me the opportunity to reply. He asked a number of questions one of which referred to the time his party was in Government and that a deal was on the table. That deal was, obviously, some kind of a side arrangement made with a couple of key people. It certainly was not a Government decision. What was supposed to be on offer at that time was £460 million.
It goes to show what happens when one prevaricates. We lost two thirds.
What was supposed to be on offer at that time was £460 million for 40 per cent of the company. The details are in my office. It was for 40 per cent of the company, not 35 per cent. It was also conditional that Ireland would take up a five year derogation and retain monopoly for a further five years, not the two years currently on offer. The Deputy should not talk to me about deals such as that.
It was an opening offer.
Since the Deputy is concerned about stewardship during his party's time in Government, I can tell him that the incompetence and ineptitude of my predecessor, a representative of his party——
The Minister certainly has not enhanced it.
——meant that opportunities were lost. This Government managed to put together an exceptionally good deal under difficult circumstances.
We would not have given it away. The Labour Party would not have let us.
Over three years the proceeds to the State will top £500 million. The State in the formulation of this deal, has the best of both worlds. It will gain immediate access to money which Telecom Éireann requires to invest in its infrastructure and the stake will grow in value in the longer term. Telecom Éireann will have a strategic partner with huge experience of competing in world markets. Both companies involved have experience of successfully transforming their companies to meet competition and that is exactly what Telecom Éireann has to do now and in the future.
Telecom Éireann will gain access to global markets through the Unisource alliance. I am appalled to hear Deputy Brennan insulting in public two companies of international repute such as KPNT and the Unisource consortia.
We do not need them. I make no apologies.
The Minister should know all about insulting companies.
Telecom Éireann will have access to the extensive technological capabilities of these companies.
We have more than them. It is a rotten deal.
Above all, customers will benefit from improved service and lower prices. That is what this deal gives.
It is a sell out.
I will not tolerate this level of interruption. I will move to the next question. Two Deputies are offering and I want to facilitate them. We have ten minutes left and I intend to deal with the questions of other Deputies. I ask for brevity at this stage as we have expended 15 minutes on these questions.
I also want to move to the next question. I will repeat the question I asked earlier which was not answered. I asked about a clause in the contract which locks out any future private investment in Telecom Éireann. I asked the Minister to elaborate on that point and also to explain the pension liabilities. What is happening to pension liabilities under the terms of this contract and what role will this company play in the area?
The Government ensured that the pension entitlements of the employees are protected under this new arrangement. On the future of Telecom Éireann and any other stake in Telecom Éireann, this Government's policy is that——
I asked about the liabilities.
This Government made a policy decision to sell up to 35 per cent of Telecom Éireann. We have done deal if for an initial 20 per cent with an option on 15 per cent over three years. As I stated, we concluded what was a major policy priority for the Government. We found a strategic partner for Telecom Éireann which is exceptional value for the State, for Telecom Éireann and, above all, it ensures a bright and prosperous future for Telecom Éireann in the telecommunications sector.
What about the lockout clause?
More important, industry and business will have access to a modern technologically advanced telecommunications network.
Why will the Minister not answer my question?
I ask the Deputies opposite to recognise that their claims made in the past three months, that it would be impossible to make a deal, have been proved wrong.
What would we do without the Minister?
I am disappointed the Deputies should react in this way because what they should be thinking about is the future of Telecom Éireann and its employees and should not be trying to score political points on a deal that has been universally accepted by all involved as outstanding.
The Minister is selling a company in which billions of pounds were invested.
We have not received an answer to my second question.
The Minister is selling 20 per cent of the company for £183 million, a company in which the taxpayers have invested billions of pounds. I am amazed that Democratic Left and the Labour Party partners have allowed the Minister to close a derisory deal.
The Minister told the Dáil that he plans to sign the deal in just 30 days, however, on 13 June the Taoiseach told the House that it was unlikely that a Bill concerning a strategic alliance in the making of arrangements derived there-from would be available until the second half of 1997. In replying to a parliamentary question on the same day, the Minister for Transport, Energy and Communications gave the same information. How will we sign a deal in 30 days time without bringing legislation through this House during his term of office which will hardly extend to the second half of 1997?
I would not be at all as pessimistic, in fact, I would be very optimistic about our term in office.
Under the Constitution, this Government's term of office will be completed before the end of 1997.
I can assure the Deputy that the Government will complete its term of office and that the deal will be signed within 30 days. The work on legislation is ongoing and will be brought before this House in accordance with the commitment given by the Taoiseach at Question Time.
Is the information that the Taoiseach gave this House, and which the Minister repeated, that the end of 1997 is the date of legislation right?
Lest the Deputy did not hear me may I confirm that this deal will be finalised and put in place in 30 days and that the commitment given to the Deputy by the Taoiseach that legislation would be brought forward still stands.
That is illegal. It is preposterous.