Vol. 693 No. 1
95 Deputy Ruairí Quinn asked the Minister for Finance if he has sought, or will be seeking, an 8% reduction in professional and consultancy fees for 2009 or 2010 from those private sector enterprises advising him, the National Treasury Management Agency and the Financial Regulator on NAMA, the bank guarantee and restructuring of the Irish banking sector; and if he will make a statement on the matter. [37686/09]
As the Deputy is aware, in February of this year, the Government decided to pursue a general 8% reduction on fees to legal, medical, veterinary and other professionals engaged by the public service from 1 March 2009. My Department wrote to each Department outlining how this decision should be implemented.
I have informed this House previously that I have received advice in regard to the banking crisis from various sources, including the Attorney General's office, the Central Bank, the Financial Regulator and the NTMA. I have also received advice from Arthur Cox solicitors. The 8% reduction has been applied to fees paid to that company since March 2009.
The National Treasury Management Agency has engaged HSBC, Arthur Cox and PricewaterhouseCoopers to provide advice in regard to the National Asset Management Agency. In July 2009, the NTMA issued a tender to procure general banking advisers in regard to the whole financial system through the procurement website www.etenders.gov.ie and Rothschilds was awarded this mandate to 30 June 2010. I have been advised by the NTMA that all firms priced the work at a substantial discount — indeed, multiples of 8% — to win the business. I also understand from the NTMA that the agency-related tenders will use the public procurement website and any prices sought will be subject to the 8% reduction.
The Financial Regulator has advised me that it is operating in accordance with public sector requirements under the Financial Emergency Measures in the Public Interest Act 2009 when awarding any contract for the provision of professional and consultancy services to it. It is important that all sectors play a role tackling the serious problem of the deterioration in the public finances. The 8% reduction in professional, consultancy and other professional services are part of the overall savings package which the Government has announced.
I thank the Minister for his reply. We know the Department of Finance and its associated agencies, such as the NTMA and the Financial Regulator, have committed approximately €23 million over the period of the banking crisis. We know, as the Minister has just said, that this has so far involved fees to Arthur Cox of €1.6 million in 2008 and a further €8.4 million covering 2009 and 2010; PricewaterhouseCoopers seems to have got at least €3.8 million; Jones Lange LaSalle seem to have got at least €1 million which we know of so far; and Merrill Lynch got €7.3 million. This all adds up to approximately €23 million to date. The Minister also referred to further consultants, HSBC and Rothschilds, which got the Merrill Lynch contract. In addition, the Minister announced in the NAMA draft business plan that he intends to spend €240 million a year on consultancy, some of which would go into the banks and much of which would go into the private firms in regard to legal affairs, accountancy, auctioneering, valuation and so on.
Does the Minster understand that this amount of fees is staggering? I would like to know how the 8% is calculated. I have not seen any evidence that the Merrill Lynch fee income to the Department has actually been reduced by 8% or, indeed, that the accountants and the various other banks have actually reduced their fees by a real 8%. Is there a tender document which the 8% is knocked off? We have not seen any actual evidence.
To take the contentions made by the Deputy in turn, first, an estimated figure of €23 million to date was cited by her. Of course, the bulk of that sum was discharged by the banks themselves as part of the recapitalisation arrangement — the banks were obliged under the recapitalisation arrangements to defer these expenses. In view of the crisis that emerged in September 2008, Merrill Lynch was engaged on the recommendation of the NTMA and, at my direction, without a tendering process. For that reason, a subsequent tendering process took place and Rothschild secured that particular tender.
The figures mentioned in the business plan are indicative figures. We will have a further opportunity to discuss them on the establishment of the NAMA board. Clearly, those figures include a substantial amount required to be paid under EU rules, where the loans are left under the management of a particular financial institution.
The question of the 8% is something that is implemented in the context of each particular contract. I will write to the Deputy with further clarification on it, because I do not have information to hand about whether the 8% is factored into the tendering procedure.
What is the Minister's view of the current in-house experts available to him and their competency on a range of matters for which he feels he needs to employ consultants? When will the Minister recruit in-house experts on these matters to eliminate the need for many of these consultants?
With the sanction of the Government, the Department is recruiting an in-house banking analyst to analyse bank matters. That person will be appointed as a civil servant within the Department, although it was not possible to appoint such a person by way of transfer from an existing Department. I was advised at the outset of the banking crisis that the Department required such advice, and that the advice was required in any event for the protection of both the Minister and the Department.
Can the Minister provide the Dáil with information on the hourly rate charged under these tender prices? Would the rate be in excess of €1,000 per day for the senior people working on the contracts? I find the €7.5 million fee charged by Merrill Lynch extraordinarily high. In his report on NAMA, Mr. Bacon referred to Merrill Lynch, but it is very difficult to know what bit of the company's advice was useful. The Department or the NTMA recently hired an economist to give the Minister advice on banking trends. The Minister claimed he had engaged an expert——
That is the civil servant to whom I referred in my reply to Deputy Morgan.
What is the cost of employing that person per annum?
I do not have that information to hand. Merrill Lynch staff were constantly on call and available up to and during the guarantee period, during subsequent discussions with the financial institutions, in connection with the decisions surrounding the nationalisation of Anglo Irish Bank, and in decisions surrounding the capitalisation of Bank of Ireland and AIB. As Merrill Lynch had been retained otherwise than by way of tender due to the urgent circumstances of the time, the NTMA took the view that it was desirable to re-tender for the business. Perhaps because of changes in world economic conditions, Rothschild tendered at a very reasonable rate for the services.
Can the Minister provide information on the hourly rate charged?
I will arrange for the information to be provided to the Deputy.
96 Deputy Deirdre Clune asked the Minister for Finance his views on the contrast between prices set or regulated in the public sector and those in the private sector; and his plans to improve the competitiveness of public sector prices. [37727/09]
Prices set in the public sector make up only about 4% of the basket of goods and services used in compiling the consumer price index. However, public sector prices make up a much smaller component than in the past. Some services such as telecoms have been privatised, and the setting of more prices has been devolved to independent regulators, particularly in the energy sector.
Prices in the public sector are generally set by Ministers or at local authority level. Due regard is given to the cost of providing the service, the length of time the price has stayed static as well as affordability. Consideration is also given to ensuring that a high level of quality is provided to the public. The regulation of ESB customer supply electricity tariffs and Bord Gáis Éireann tariffs is the statutory responsibility of the Commission for Energy Regulation under the Electricity Regulation Act 1999 and the Gas (Interim) Regulation Act 2002. The Government has no function in setting these tariffs. A key role of the CER is to oversee the transition to a more competitive market structure in line with EU and national policy. Independent suppliers are now offering significant discounts of between 10% and 14% on ESB unit rates.
An issue of concern is that Ireland has lost competitiveness in recent years and it is essential that this position be improved if we are to benefit when EU and world growth resumes. A key part of this loss of competitiveness has come about from wage costs increasing at a rate not justified by gains in productivity. Changes in prices set by the public sector can only make a very small impact in either direction. However, pursuing appropriate incomes policies is critical, particularly within a monetary union, and is essential to restoring our lost competitiveness.
I welcome the Minister's acknowledgment that we have lost competitiveness, but I must express dismay at his suggestion that the Government has no function in the area of prices set by the Government. Has he considered the competitiveness report, which shows that all of the non-pay business costs in control of the Government are in the "red light" danger area? Many of the most chronic cases, such as electricity, telephones, broadband, waste disposal and health insurance, are directly controlled by the Government. How does the Minister expect ordinary workers to accept that there is a need for making cuts in their pay, when he sits on his hands and claims that the Government has no role on key public sector prices that are way out of line with all of our European competitors? Surely the Minister sees the need for a competitiveness pact led by the Government addressing these issues and others such as boardroom pay, so that we can see that if sacrifice is to be made, it is made in a way that is fair.
I did not indicate in my answer that these are matters in which the Government has no function. I indicated that the sectors to which the Deputy referred were sectors in which the prices were set by the Commission for Energy Regulation. Electricity and gas tariffs are the responsibility for the CER, and that is the statutory position. With respect, they are not the responsibility of the Government and these were the particular examples given by the Deputy.
I did not mention gas.
No, but it is pertinent as well. The Deputy did give the example of electricity, and the regulator there is responsible——
I could have given health, education, communications or any one of 1,000 areas.
Yes, but the Deputy did not give an example of those areas, but an area which is of great importance and which is under the tariff control of a regulator. I have considerable sympathy for the point the Deputy has expressed. If we are to grapple with our problems, it is not enough simply to have an adjustment in the public sector or an adjustment in the competitive public sector. We also need to see what adjustments can take place in the sheltered private sector. I made that point to IBEC in the course of a recent meeting in the social partnership discussions.
Who is going to lead if the Government does not do so?
The ESB is not allowed to reduce its prices because these are being kept artificially high by the regulator in order to encourage market entrants. That is also what has happened in the telecoms sector. We have a regulatory system of a cost and structure that would be suitable for the United States of America, but is totally inappropriate for a small country like Ireland, with a relatively small market and population. What will the Minister do about the person who, having been asked to take a wage cut and taken such a cut, will continue to be asked for €60 when he or she takes his or her child to the doctor with a flu because he or she does not have a medical card? No reduction in fees will apply to people who have to purchase essential services like health services. On the contrary, they have gone up and they have never come down.
Is the Deputy suggesting — I do not criticise her if she is — that we should introduce price controls in certain areas?
If the Minister is asking workers to take a big hit, he has to do something about the reductions they are not getting.
If the Minister would answer questions, rather than pose them, that would speed business along.
I appreciate that I should not, like a Kerry man, answer a question with a question. If Deputy Burton is suggesting the introduction of price controls, I will examine the matter.
97 Deputy George Lee asked the Minister for Finance if he will make arrangements that the Comptroller and Auditor General assesses the robustness of the draft National Asset Management Agency business plan; and if he will make a statement on the matter. [37749/09]
Prices set in the public sector——
We are back to the same question again.
I am getting a sense of déjà vu.
We had a few hours of this on Thursday evening.
We have heard this three times.
This is a succinct reply, so the Deputy might get a few supplementary questions in. I published the draft NAMA business plan, which was prepared by the interim NAMA management, to inform the debate on NAMA. It is clear from its title that it is a draft report. The actual business plan cannot be initiated until NAMA is established and a board is appointed. The function of the Comptroller and Auditor General is to review performance, to audit expenditure and to report on the accounts of public bodies. The suggestion that he should be involved in a review of the draft business plan is misguided. I do not see a role for him in the review of the NAMA business plan.
Given that just 6% of the land and development bank is performing, whereas the business plan forecasts that 80% of it will produce a full refund, can the Minister understand the scepticism of some people? Similarly, does he understand why people are dubious about the use of a risk discount rate of just 5% for highly risky projects, not to mention the expectation that the administration costs of this operation will be just 0.4%? In light of such dubious assumptions, will the Minister agree that someone should vet the soundness of this plan on behalf of the taxpayer? If he does not believe the Comptroller and Auditor General should perform such a function, who does he believe should be responsible for protecting taxpayers from rushing into decisions without a proper foundation?
With regard to the power of the Comptroller and Auditor General to institute value for money reports, a series of changes have taken place since the draft NAMA business plan was prepared. Property values have continued to fall. We have received information from various court cases and legal actions. We have learnt that the value of the Irish Glass Bottle site in Ringsend has decreased stupendously from more than €400 million, at the last count, to between €60 million and €80 million at present. The draft NAMA business plan does not provide for any such falls in value. The Minister is trying to make savings on the ordinary budget. Does he agree he should try to cut the €54 billion cost that the taxpayer is undertaking? Does he accept that it would make sound business sense, in the national economic interest, to do so now?
The valuations that will be reached, under the separate and independent valuation procedure that is envisaged in the Bill, will establish whether Deputy Burton is correct. The 5% discount rate in the draft business plan, which was mentioned by Deputy Bruton, is based on the current cost to the Government of funding ten-year bonds. This is an appropriate discount rate as the term of NAMA is expected to be approximately ten years. Private investors enjoy higher discounts that are linked to returns over shorter periods. I accept that the valuations used by NAMA will have regard to the discount rates in the private sector, when appropriate. I was also asked about the breakdown of the discounts. Deputy Burton referred to a particular case. It has to be said that a substantial discount is already factored into the draft business plan. The yield assumptions in the plan assume a fall of 40% in commercial rents for new leases. The yield figures already assume a 20% fall in rents and a 50% fall in property values.
There already has been a catastrophic fall in the value of the Irish Glass Bottle site.
The business plan proceeds on the assumption that this fall will continue.
Written Answers follow Adjournment Debate.
