Other Questions. - Telecom Éireann Strategic Alliance.

Seamus Brennan


16 Mr. S. Brennan asked the Minister for Transport, Energy and Communications the tax planning elements which were contained in the strategic alliance deal with KPN/Telia and Telecom Éireann and which were referred to by the chief executive of Telia (details supplied) on 30 January 1997; and his views on whether Telecom Éireann should be privatised within three years. [3850/97]

There are no special Irish tax arrangements in the alliance agreement reached between the State and the partners, KPN and Telia. It is my understanding that comments about tax planning issues made by a representative of the strategic partners related to arrangements between KPN and Telia. As these are matters for the two partners, I have no further comment to make.

The Deputy should at this stage be well aware of the Government's views on the future development of Telecom Éireann. Government policy on this issue is clearly set out in the programme for Government. In summary the State's assets will not be sold except where it protects employment and is in the long-term strategic interest of the company and its stakeholders. The Government is committed to retaining majority State ownership in these companies. Opportunities for expansion to utilise the bank of skills in these companies will be encouraged. In addition, commercial State bodies will be given a clear commercial mandate and clarity in the financial targets which measure their performance.

The Telecom Éireann strategic alliance clearly fits the criteria set down in the programme for Government as being in the long-term interest of the company and its stakeholders. Furthermore, the Telecommunications (Miscellaneous Provisions) Act, 1996 provides that the aggregate State shareholding in Telecom Éireann must not be reduced to less than a majority of the issued share capital.

The Minister is aware the head of the new partners has been quoted in national newspapers as saying one of the reasons for the deal was some tax planning requirements. The Minister said there were no tax implications in Ireland, but has he any information about the kind of tax planning arrangements entered into by the new partners in Telecom Éireann? Do the three parties in Government consider these tax arrangements to be acceptable?

There are no special Irish tax arrangements in the agreement with KPN and Telia. It is my understanding that any tax planning arrangements relate to matters between KPN and Telia outside of the jurisdiction of our tax authorities. I have no comment to make about that.

I want to put two points to the Minister. Twenty per cent of Telecom Éireann is now foreign owned. It was sold for a scandalously low price but that is a debate for another day. Since they took over, the owners first said the figure of £500 million was negotiated by the company, and which the Minister's predecessor and the Minister of State told the House was £500 million from time to time but they are now quoted as saying that figure was largely a political figure.

What else would they say?

I told the Minister it was a political figure before he did the deal. Does the Minister now accept this?

The Minister has laid out Government policy in regard to privatisation but the chief executive of Telia says that he intends to see it brought about in three years. I take it that the Minister has communicated with the minority shareholder and brought to its attention Government policy in this regard?

The minority shareholders are well aware of Government policy and since I expect this Government will continue in office after the next general election, by the time we get to the end of that three year period, this Government will hold its view.

The deal is a much better deal than the Deputy tries to pretend.

It is a rotten deal.

The Deputy has consistently chosen to ignore the various factors that have been put forward on the composition of the deal.

The new owners said it is largely a political figure.

Let us hear the reply without interruption.

Thank God the Deputy has no function in these matters because he is so appallingly naive. I hesitate to say what would happen every morning if he was a member of a Government because he would run in fright from every headline. The total proceeds to the shareholder from this alliance will come as a result of three separate steps. The initial proceeds will be £183 million. The partners have committed themselves to an option to purchase a further 15 per cent within three years——

——which when exercised will yield a further £200 million bringing the total by then to £383 million.

Not a chance.

The final payment will come from establishing the market value of the company based on a public offering or other agreed valuation at around the end of three years——

A public offering — Mr. Stagg.

——and applying that valuation to the full 35 per cent stake purchased by them. The increase in value above a threshold based on an agreed rate of turn on the purchaser's initial investment on the 20 per cent stake and the option price on the 15 per cent is shared 60/40 between the State and KPN/Telia. The proceeds of that calculation depend on the success of the strategic alliance in increasing the company value, and the total proceeds, based on achieving the targets in the company business plan, will amount to over £500 million.

That is largely a political figure. The new owners said that, not I.

The Deputy does not like to accept that. He shows all the signs of being a person who would be frightened by anybody who shouts loudly enough at him.

Do not try to bully me.

I would not try to bully the Deputy. I do not believe in kicking lapdogs.

Let us have less abuse and more policy. I am not frightened of the Minister.

Bravo. That is a brave little man.

Let us have an orderly debate.

The Deputy persists in ignoring the factors that are in the deal because they simply do not suit the political case he wants to make.

They are political figures.

We are making slow progress. I want to move on to other Deputies' questions.

Does the Minister agree, in view of what the head of KPN Telia said, that it might be advisable in the future if we were to give a stake to the employers and the customers of Telecom Éireann, and that one of the best ways of doing that would be to float it on the market? Has the Minister considered such a possibility? What is his view on the question of ensuring a shareholding for the employees and customers of Telecom?

I should make the point that we were not simply looking for cash in setting up this strategic alliance. We were concerned to reinforce Telecom Éireann in a number of different ways and to plug it in to other operations on a world scale. This is what the strategic alliance has done.

Simply floating off a portion of its shareholding on the market would not have got us that result. This was not a floating off of a portion of Telecom. This is a strategic alliance which will bring significant benefits to the company.

It is a sell-out.

It is anything but a sell-out. The Deputy will come to appreciate that in time, and he will come to thank those of us who have been involved in this.

No Irish need apply.

If Deputy Brennan can point to a company in Ireland that has the kind of international connections that KPN Telia has, I would be delighted to consider it——

Telecom has them.

——as a further partner for Telecom Éireann.

There was never such a botched job.

I am delighted to hear that from Deputy Brennan because it shows how out of touch his thinking is on this. I am delighted also to be able to tell Deputy O'Keeffe, that in the next couple of days, we will be initiating a discussion with the union coalition in Telecom Éireann on an employee share participation programme which will be a very important part of the process of change in Telecom and which, I hope, will contribute substantially to management and harnessing change for the benefit of the company, its employees and customers. Also, since the Deputy has asked, I am not at all enchanted by the idea of consumers being shareholders; the benefits that we seek to secure for consumers are in terms of a wider range of higher quality services at lower prices.

It is all right for foreigners to be shareholders, but not for customers.