I welcome the Minister of State.
Communications Regulation (Postal Services) (Amendment) Bill 2016: Second Stage
Question proposed: "That the Bill be now read a Second Time."
Go raibh maith agat, a Chathaoirligh. I am very pleased to have the opportunity to address the House on the Second Stage of the Communications Regulation (Postal Services) (Amendment) Bill 2016 which was passed on 22 February by Dáil Éireann. I extend apologies on behalf of the Minister for Communications, Climate Action and Environment, Deputy Naughten, who unfortunately is unable to attend today. The Bill is a relatively short legislative proposal, the purpose of which is to repeal section 30 of the Communications Regulation (Postal Services) Act 2011, which sets out the mechanism for regulating postal pricing within universal service using a price cap mechanism.
The mails business is undergoing a profound structural change both here and internationally. Electronic substitution has had a significant impact on the letters business while also providing opportunities for growth in parcels. This development is particularly apparent in terms of large volume postal customers such as banks and utility providers. The trend, which has been evident for some years, accelerated in 2016, with An Post recording a year-on-year doubling in volume decline, resulting in a serious financial impact for the company.
In addition, the impact of a 2.5% Labour Court pay recommendation has added further pressure to an already delicate financial situation. Each 1% decline in mail volume equates to a loss of revenue for An Post of €4 million and a 1% increase in pay adds €4.5 million to payroll. The mails business still generates almost two thirds of An Post’s revenue and represents 78% of company payroll. That explains why the volume decline and Labour Court award has had such an impact on the company’s financial base.
Internationally, the mails and post office businesses are experiencing long-term structural challenges, so this is not just an issue facing An Post. One of the main elements of the postal service here in Ireland is the daily delivery of post to every address in the State. Government is extremely cognisant of the value placed on this service by communities in both rural and urban areas and recognises the importance of ensuring An Post has the capacity to continue to fulfil its obligations in this regard.
It is clear that the company is entering a period of significant change to cope with the rapidly changing environment in which it operates. In this regard, the company has started a fundamental review with a view to identifying the strategic changes and restructuring necessary to maintain the company on a sound financial footing. The Government fully supports this review, the outcome of which is expected early in quarter 2 of 2017 and accepts that the company requires some financial headroom to be able to implement the findings of the review while continuing to deliver on its universal service obligations.
Consequently, the Government has agreed to introduce this Bill as a matter of priority to repeal the price cap mechanism. This is the most viable option to support An Post in the short term while a restructuring plan is being implemented. This decision was not taken lightly. NewERA has conducted an in-depth review of the company in recent months on behalf of the shareholding Ministers and has confirmed the seriousness of the situation the company is facing. The Minister, Deputy Denis Naughten, has met the chairman and CEO of An Post, officials from ComReg and representatives of the Communication Workers Union to discuss the issue in detail. Having considered all matters, the Minister acted swiftly in taking appropriate action.
The impact of the legislation will involve a substantial increase in stamp prices. Stamp prices in Ireland are currently well below the European average. It is expected that the proposed increases will bring the price in line with European norms. As we are cognisant of the impact this measure might have on consumers and on the SME sector, we have provided in the Bill that ComReg will undertake a review of the consequences of the repeal of the price cap mechanism after a two-year period. ComReg will report to the Minister on its findings within six months. The Bill also enables ComReg to undertake such consultation as it considers appropriate in carrying out this review.
The Minister has issued a policy direction to An Post instructing it that price increases introduced following the repeal of the price cap mechanism must be subject to prior consultation with ComReg and must have due regard to the tariff principles set out in section 28 of the Communications Regulation (Postal Services) Act 2011. These principles set out a number of requirements which must be complied with in the provision of a universal postal service. For example, prices must be affordable and must enable all users to avail of the services provided, prices must be cost-oriented and tariffs must be transparent and non-discriminatory. Under the 2011 Act, ComReg has a role in ensuring compliance with the tariff principles outlined in section 28.
An Post has been instructed to give due consideration to the impact any increase will have on personal customers and on the SME sector. It is important to remember that An Post provides a high-quality mail service to Irish businesses and personal customers across the country. The mail network undertakes the delivery of 2.5 million mail items to 2.1 million homes and businesses every working day and consists of 7,620 collection, processing and delivery staff, 160 local delivery units and four national mail centres. The company has a number of strengths, including its brand and nationwide reach. The post office network implementation group, chaired by Mr. Bobby Kerr, was established on foot of the publication of the final report of the post office network business development group. The implementation group worked throughout 2016 to arrive at a suite of recommendations to support the future sustainability of the post office network. These recommendations are with An Post for its consideration. It is expected that they will be considered in the context of the strategic review of the company.
An Post is a significant employer with over 9,000 staff. Its payroll costs amount to €40 million per month. This includes payments to the postmasters who run the bulk of the post office network. I want to make it clear that despite An Post's difficult financial situation, there is no threat to the delivery of mail or to the universal service obligation. An Post will continue to deliver post to every address every working day, in line with the EU requirement. The amended approach to pricing being facilitated in this legislation aims to ensure An Post can continue to fulfil this obligation.
I will outline the main provisions of the Bill. For the convenience of the House, a detailed explanatory memorandum has been published to provide a synopsis of the provisions. The Bill is relatively short and consists of three sections. Section 1 provides for the repeal of section 30 of the Communications Regulation (Postal Services) Act 2011, which provides for the price cap mechanism. The section also provides that any price cap decision within the meaning of section 30 will cease to have effect.
Section 2 provides for an amendment to section 10 of the Communications Regulation Act 2002 to enable ComReg to carry out a review of the consequences of the repeal of the price cap mechanism in section 30 of the Communications Regulation (Postal Services) Act 2011. The functions of ComReg, as set out in section 10 of the 2002 Act, as amended, are being amended in this Bill to enable it to undertake this review. This review will commence two years after the coming into operation of this legislation. ComReg will report to the Minister on its findings within six months of the commencement of the review. The Minister will lay the report prepared by ComReg before each of the House of the Oireachtas as soon as practicable. In addition, provision is made to enable ComReg to undertake such consultation as it considers appropriate in carrying out the review. Following an amendment on Report Stage in the Dáil, this Bill now provides that this consultation will be completed by ComReg within 42 days.
Section 3 contains general provisions relating to the Short Title, commencement, collective citation and construction.
Given the seriousness of the challenges facing An Post, it is considered prudent to have this legislation in place as soon as possible to allow An Post pricing freedom at the earliest opportunity.
As it stands, An Post must give notice of its intention to increase prices so even after the commencement of the legislation, there will be a delay before a price increase can take effect. I look forward to hearing the views of the House on the Bill, a constructive Committee Stage debate and Senators' valuable assistance in facilitating its early passage into law. I commend the Bill to the House.
Senator Gerry Horkan has eight minutes.
I thank the Minister of State at the Department of Communications, Climate Action and Environment, Deputy Kyne, for being present for this important debate. I too am substituting on behalf of my Seanad colleague, Senator Leyden, who is at a British-Irish Parliamentary Assembly meeting in London.
I welcome the opportunity to speak on the Communications Regulation (Postal Services) (Amendment) Bill 2016. The Fianna Fail Party supports this Bill as a necessary step in ensuring the sustainability of An Post. However, the long-term future of our postal services needs a much broader range of measures to keep an active post office network alive and well across the country. The system is under serious financial pressure and requires fresh thinking, not just simple price increases.
It has now been eight months since the formation of this Government, with little movement by Government on outlining a plan to safeguard the future of the post office network. Currently, Government responsibility for post offices and its future network renewal resides between two Departments and three different Ministers. The Government received Bobby Kerr's report almost a year ago which outlined a number of practical solutions to address the problems in An Post but it has yet to take any action. This is unacceptable.
The Government must put a new emphasis on defending services in Ireland, particularly rural Ireland, and must stop neglecting ideas that are being put forward. Securing the role of post offices as community hubs is a vital component of that. This Bill seeks to remove the price cap that is currently placed on stamps in response to the financial difficulties An Post has been experiencing. The Bill also accords responsibility to ComReg to review the effects of repealing a price cap, a review which must be commenced two years after the enactment of the legislation and which must be concluded within six months of its start date.
A standard stamp in Ireland costs 72 cent and is 21 cent cheaper than the EU average. Bringing the price of the stamp more closely into line with the EU average will help An Post to regain financial sustainability and to continue to serve its customers, but inevitably volumes will fall. At the same time, making the mail delivery component of An Post more profitable will not save the entire network. Mail delivery represents an increasingly small portion of An Post's overall business, something which will likely be accelerated by an increase in price.
We need to seriously consider other options to diversify An Post's business model and to ensure the long-term sustainability of the network. Fianna Fail believes the post office network in Ireland is more than simple buildings supporting a commercial enterprise. Post offices are an important strategic asset, which play an invaluable role as the centre point of community and commercial activity in urban and rural Ireland. These offices provide key State services and often reduce social isolation.
As one of the most trusted brands in Ireland, An Post has the potential to increase the commercial success and business activity of the post office to a greater level. The Fianna Fail Party has repeatedly fought to defend the network against Fine Gael's past inaction and incompetence. We therefore put forward the following proposal to consolidate the post office network and increase commercial activity in every post office unit. The network needs to be guaranteed as it currently exists. We need to allow post offices to become the centre for many different State payments and charges, including motor tax and banking services. We did have a post bank offering before which did not work out, but this needs to be looked at again in the context of the different banking environment we have now, which is very different from the environment that Postbank was operating in at that time.
Equally there are many fines that could be dealt with via the post office as opposed to by the courts or the local authorities. I know the local authority on which I served moved the rental payments from the council offices and ceased to have a cash office and got people to make the payment through the post office. Our local authority is doing its bit to help the post office network. There was a situation where my former local authority would have to pay €150 to do a secure cash delivery and would have only picked up €30 to €40. The post office offers a major retail network and it is important to harness it where possible.
We can create shared community services and a multipurpose space in rural post offices, and also provide Internet and print facilities at those offices, particularly where appropriate and where volumes are currently very low. We should extend the Department of Social Protection contract. It is very worrying, particularly for rural communities, that the Department of Social Protection previously encouraged people to receive welfare payments directly through their bank account rather than by collection at the post office, taking crucial transactions away from post offices. It is inevitable that cash payments will reduce over time and electronic payments will increase, but perhaps there is an opportunity for people to go to their post office as a signing in facility and that the post office is there to verify their identity and to ensure persons are still in the country and are still available for work and seeking work.
Even if the cash is moved electronically rather than being transported to post offices and then given to people who are spending it in the shop and bringing it back to the post office, the post office could be harnessed to do some of the work it is currently doing for cash payments. We have been campaigning for the past two years for the Department of Social Protection to immediately stop issuing letters about moving to electronic payments. In July 2016, the Minister, Deputy Varadkar, relented and performed a U-turn by directing his Department to cease instructing welfare recipients to transfer their payments from the post office to banks. The Government has failed to secure the long-term future of An Post's agreement with the Department of Social Protection and has placed it on a yearly basis. The Government has failed to commit to protecting the existing postal network despite announcing a whole-of-Government approach to the development of An Post before the European and local elections in 2014. Concrete actions are needed as opposed to PR and spin. In supporting this Bill, Fianna Fáil recognises the positive impact it can have on An Post, the post office network and those who are employed in the provision of the service. However, it is in no way an acceptance that it is a solution to An Post's problems. We will continue to hold the Government to account on this issue and to put forward innovative policies on revitalising the network.
It is important to outline the scale of An Post's operations. It has 1,130 offices employing 3,700 people; 51 are owned by An Post and the remainder are independently contracted to An Post. They are often co-located with other retail units where it is of benefit to the shop to be with the post office and to the post office to be with the shop. According to An Post, 99% of addresses in the country are within 10 km of a post office and 93% are within 5 km of a post office. At the finance committee, of which I am a member, we regularly lament that the banks are closing down and pulling out and consequently, the post office is an even more vital part of communities than it was before. It handles around 120 million transactions but mail volumes have declined by 38% since their peak in 2007. We will see that again. My bank, UPC, Vodafone and so on are all asking people to go electronic. As mail volumes will fall we must, as a nation and a Government, ensure the future of An Post by refreshing it, giving it new, additional services and promoting efficiencies across all Departments of the State. There should be a whole-of-Government approach to An Post.
I thank the Minister of State and look forward to hearing his response.
I welcome the Minister of State and this debate. I support the measures in the Bill. It is a short-term, emergency measure that will not solve the problems of the post offices but at least it will stave off major solvency issues in the short term. This needs to be just a start. The Minister of State referred to reviews. There have been major reviews. In the last Dáil, I was Chairman of the communications committee. We produced a report making suggestions on what needed to be done with post offices but the time for reports is at an end and the time for action is now. This measure has to be implemented and I am glad there is consensus on the approach to it as an emergency measure.
Senator Horkan mentioned motor tax and all of those things. Some of those measures need to be implemented once and for all. We have banks closing down in areas and a post office network that is underutilised. We need to overcome the obstacles to putting more services into the post offices. When rural Ireland is under pressure, successive Governments are blamed. That is the nature of it. I could come in here and argue that fewer post offices closed during the term of the last Government than the one previous to it but at the end of the day, we all seek a solution. Lifestyles have changed and it is important to make it appeal to the public. We have all stood in halls where there was an opposition to a post office closing down. There would often be 400 or 500 people in it but if half of them supported their local post office, we would never have had to go to that hall. People do not shop as locally as much as they used to. I am not blaming the public but the solution is multidimensional. I am not absolving this, the previous or any Government. We need to put more services into the post offices. Banking services and so on need to be fast-tracked because at the end of the day, the sums do not add up. While the volume of mail is declining as a result of e-mail, I note e-mail is nearly out of fashion now because there are so many other forms of communication. That is moving apace and life is moving apace. Everyone is catching up with it so we need action. We will only realise the need for post offices if they disappear. I welcome that this will not be allowed to happen but we need to see action on it as soon as possible. We need to look at the strengths of the postal services. There is a postal service every working day in every part of Ireland and it is important to maintain that.
Another thing that has affected rural Ireland is people shopping online instead of locally. That can be an advantage for post office parcel services. There is a niche there and it has increased hugely. A number of years ago it was almost being discouraged by An Post. Now it sees how it is growing and sees the need to latch onto it. There is more potential for growth in the post office for parcel services. I have spoken to postmen and women and they emphasise that the volume of parcel post has multiplied. That needs to be explored even further. Whatever measure is needed, whether it is through Government or public support, it needs to be done quickly. In the short term, this measure will help to keep the show on the road.
I acknowledge the role the post office has played thus far in the life of rural Ireland. It is not acknowledged enough how absolutely vital it is in certain areas. Sinn Féin recognises this but also sees an enhanced role for the post office network far into the future. In our document, A New Deal for the West, we put the local post office at the heart of our plans for communities. We want to see a range of services provided at post offices. They should be given the ability to sell insurance, process motor tax, offer single payment accounts, provide banking services and process the payment of bills to local authorities. They are positive moves that Sinn Féin supports. Years ago, when I lived in London, they were things that were automatically done through the post offices. When I hear that emergency legislation is needed, I think successive Governments have been asleep at the wheel. We should never need emergency legislation on this. It is a crazy idea. We know people's tastes and we know the trends and what people need. As someone who lives in rural Ireland, emergency legislation to ensure the survival of post offices is crazy. We support most of the recommendations of the Kerr report and want them to be implemented speedily.
The main thrust of the Bill involves removing the cap on a price increase to postal services currently set out by the communications regulator. We accept the need for an increase but believe the removal of the cap will lead to uncertainty and remove a vital check on any potential increases. In its submission to the Joint Committee on Communications, Climate Action and Environment, ComReg stated it was very worried about the liquidity position of An Post.
It has gone from having a cash balance of €350 million in 2008 to having just under €40 million at present. While ComReg was at pains to stress its independence regarding whether to support the legislation, the figure mentioned points to serious financial problems at An Post. It seems the Government is intent on allowing prices for postal services to greatly increase rather than investing in the network.
I am concerned that removing the price cap and significantly increasing the price of postage before the development of an enhanced An Post service will jeopardise the viability of the company further. By lifting the cap on postal pricing, we are told it is expected that the increase in the cost will be in the range of 12% to 38%. It is certain that an increase at the higher end of the scale will dissuade people from using the postal service.
Putting our post offices in danger means that older people, especially in rural areas, will be forced to rely on the kindness of family and friends or on the public transport system to access services in other areas once their local post offices have closed. Given the many difficulties affecting the public transport system, this creates even more concern for people who rely on their local post offices to access services. Put simply, Sinn Féin would prevent any further closures or downgrading of the network by negotiating a comprehensive review of derogations from the postal services directive to increase minimum standards of universal provision and also to increase obligations to communities regarding, for example, accessibility and protection of branches from closure.
There is a problem with just repealing section 30 of the 2011 Act and removing the cap ComReg can currently impose. ComReg can set a range, currently from 60 cent to 75 cent. Removing this power is a negative move. We believe there should be freedom to increase charges but ComReg needs to play a role. The Bill removes ComReg's role, which is counterproductive and will push more customers away. This is particularly the case given the price increase that has been mentioned. The Bill does not simply raise the price cap but gets rid of it completely.
The general secretary of the Irish Postmasters Union has expressed concern that the price increase will reduce the volume of business and threaten postal services. Justin Moran of Age Action addressed a meeting of the Joint Committee on Communications, Climate Action and Environment in January and stressed that the big increases will affect older people most. They could be doubly hit, not only by the increase in the cost of the postal services but also by the removal and closure of local post offices. Mr. Moran argued that the increase will have a disproportionate affect on older people because they are more likely to use postal services. It noted that only 3% of those aged over 75 years used electronic mail. The repeal of the pricing cap also represents a weakening of the power of the regulator. ComReg's role will become one of a spectator or commentator at best. Uncontrolled price increases may bring a temporary solution to the financial problems of An Post, but these will only get worse if customers are lost and the company finds it hard to maintain its existing post office network. If ComReg is removed from the process, I fear that any increases will become uncontrolled and unsustainable.
The postal service industry in Ireland had a turnover in 2015 of approximately €540 million. An Post's losses in the same year amounted to €25 million, the bulk of which, as we learned yesterday, can be attributed to international mail delivery and the registered mail service. An Post receives only 44 cent per standard letter item for international mail. Domestically, however, postal services are almost breaking even.
The consulting group, McKinsey, has been hired to conduct a strategic review and advise An Post on the future of the business. It is surely premature, therefore, to implement price hikes. While Sinn Féin accepts it is necessary to take action, it is wrong to remove the role of the regulator and its ability to impose a cap on prices before the McKinsey report has been published. I understand the report is due in April or early May.
Although An Post and the broader postal service network in Ireland are separate entities, they cannot be viewed in isolation from one another. The post office network must be considered in any examination of postal services. The financial health of the postal network and the well-being of the corporate structure of An Post are related. On many occasions we have asked the Department of Social Protection to stop sending letters to people encouraging them to manage their social protection payments through banks rather than post offices. It is vital that this function remains.
The recent pilot scheme between post offices and credit unions was deemed a success in terms of joint loans and payments made to either institution at branches of both. There is no reason this trial run could not have been extended to 1,130 branches across the State. The local post office is an essential component of the cluster of businesses needed in any small town or village.
The purpose of the Bill is not to permit price increases but to sideline the Commission for Communications Regulation. We complain a great deal about the inactivity of regulators. This legislation sidelines and removes a regulator from the pitch, which will result in ComReg becoming a spectator or, at best, a commentator. We believe this is the wrong approach.
I welcome the Minister of State. I am conscious that we are discussing the Communications Regulation (Postal Services) (Amendment) Bill 2016. I take the opportunity to share some of my concerns. I recently met representatives of the Irish Postmasters Union, IPU. We can talk at great length of our own experiences and our own views of post offices, but we must recognise that they are a national social asset. They are also a very important community hub. An Post has an opportunity to expand its service offering. It has an amazing network. It is the biggest single retail network across the country which presents great opportunities.
It is clear that there are issues, particularly at a time when the Government has made a big pitch on balanced urban-rural regional development across the country. There are particular issues for rural communities with small post offices. However, many post offices are also facing closure in suburbs of Dublin. These are in places where there is no public transport, many elderly people and many people who wish to avail of the services. That is an important point. We do not seem to have a definitive policy on where the future for An Post lies. Where is the future for this small but very important hub in the heart of urban and rural communities? As I have said, they represent the largest network of retail units in the country.
I want to focus on six points the Irish Postmasters' Union raised with me. It wants the Government to recognise the post office network as a national asset and to ensure its future by making it the provider of choice and the front office for all Government services such as motor tax, hospital charges, local property taxes and perhaps other taxes and charges. How can it be used as a community hub offering more services? There is a possibility of MABS information, local outreach Garda clinics, citizens information, etc. How can we tie in all of these with the established hubs of post offices? The need to recognise the post office network as a national asset is important and must be taken on board.
The IPU wants to secure the role of post offices in delivering Department of Social Protection payments, either by means of cash or direct electronic payment, and maintaining the existing rates. That can be developed and expanded within the post office role. The IPU believes there is potential to grow that area. It wishes to provide funding for a standard bank account through the post office network to ensure financial inclusion for all. The potential for that growth is important. It also wishes to quantify the social role which post offices provide. I do not believe the importance of that has been quantified and teased out. The IPU refers to the onus on the State to provide equality for citizens under Article 45 of the Constitution. We need to provide services equally to all people in the nation. There are some grounds there and the Minister of State might like to look at that.
The union wants the Government to instruct An Post to immediately cease any action, over the "post and pay" pilot project, which could be construed as establishing an alternative network.
The IPU has concerns about the damage alternative networks may do to the post office.
I will conclude because those are the six key points the members of the IPU wish to have addressed. They seek a comprehensive commercial review of the network to be carried out to ensure its viability for the foreseeable future. That does not mean coming up with suggestions that it is not viable, but to come up with an imaginative plan for the future of the post office and the service it offers its community, and particularly rural people. I will not discuss transport or telephone services at length. Earlier a Member spoke about the cuts in telephone services for rural communities. There is a range of cuts and people in isolated, rural communities are suffering. There is a real need for a strategic plan that recognises the important community asset the local post office is and the important contact it provides. It must be supported. A strategic policy is required on how to secure and retain post offices throughout the country, be they in urban or rural areas.
I welcome the Minister of State and compliment him on his presentation on this important issue. Basically, we are seeking to pass legislation that will hopefully ensure the postal service will be viable into the future and particularly in the short term. A further body of work is required to ensure the postal service can progress in the long term.
The postal service is at a crossroads. There have been dramatic changes in volume and in how the public, not only in Ireland but also throughout the world, communicates. Electronic mail has become the main form of communication for many industries across the world and that will affect how we will promote our postal service. We must examine international models in that regard. The pricing structure An Post has at present is at the lower end of international pricing levels. It is a key issue we must examine. It is not popular to say this but we must look at the current pricing structure. We have debated this issue in the communications committee. All of the main players appeared before the committee, which was very helpful, and we teased out many of the key issues that are important for this project. I believe the two-year review is important because we can examine where the pricing structures will be two years hence. However, the long-term issue is the Bobby Kerr report and how we can promote the postal service and the network of post offices around Ireland.
For years we have had the problem of post offices closing. Now the issue is that postmasters do not wish to take up the opportunity of operating a post office in a village because they do not think it is viable. We have come full circle, so there must be a review of how the service will be promoted into the future. The postal service has lost services it could have provided, such as the driver licence service. We should have considered that for the post office setting, given that it had the services and infrastructure required. Unfortunately, it did not work out when it came to the tendering. If we had services such as that linked to the postal service it would promote the service in the future.
However, this is a crossroads and the legislation must be supported. It was supported in the Dáil by all parties aside from one amendment that was supported by the Government. It is important to pass this legislation as soon as possible so we can steady the ship for the future. If we pass the legislation through all Stages by next week it will go a long way towards putting the postal service on a good footing in the short term. However, the long-term issue must be debated. In fairness to the Minister of State, he is very much aware of that and I am sure he and the Minister, Deputy Naughten, will come forward with the longer-term plan that is required to ensure the postal service is saved.
I thank the Senators for their contributions to the debate. Undoubtedly, An Post is entering a period of significant change in order to cope with the rapidly changing environment in which it operates.
I thank Senator Horkan for voicing Fianna Fáil's support for the Bill. I understand and accept his view on the importance of An Post as a rural service, that the An Post business model is a strategic asset and that we should harness its resources where possible. An Post has commissioned McKinsey & Company to undertake a fundamental review of An Post and its operations with a view to identifying the strategic changes and restructuring necessary to maintain the company on a sound financial footing. The timeline for delivery of that report is the second quarter of this year. This is a separate exercise to the Bobby Kerr report but the findings of both reports will inform the future strategic direction of the company. There is no doubt that An Post will undergo significant and necessary change in the future and in this regard the Government looks forward to being briefed on the McKinsey & Company review. Many of the issues the Senator raised will be dealt with in the context of the implementation of both reports.
Senators O'Mahony and Boyhan also addressed the issues for the future. Obviously, the McKinsey & Company and Kerr reports will deal with these. The final Kerr report was presented to An Post on 23 December last. It contains a number of recommendations which are being considered by the board of An Post, and the Government looks forward to details of any implementation plan that arises from that. It would not be appropriate to comment further on these matters until both reports have been fully completed and considered.
Senator Conway-Walsh spoke about the impact of the price increase. Obviously, there is concern that the legislation will have the effect of accelerating the decline in volume. An Post engaged Indecon Economic Consultants to examine this question and the findings indicate that price increases will not necessarily escalate electronic substitution. The findings of that work will inform An Post's consideration of the appropriate level at which to set a revised pricing structure. The chief executive officer has indicated that the price increase will be in the range of 12% to 38%. Such an increase will bring the price in line with European norms. The Senator also said that the purpose of the Bill was to get rid of ComReg. Its purpose is to respond to the dire financial situation of An Post. It is a serious financial position and that is the reason we are here. Clearly, the company will undergo significant restructuring. Such restructuring takes time and this legislation will give the company the financial headroom to restructure while awaiting the implementation of the Kerr and McKinsey & Company reports.
I acknowledge the role of post offices in rural Ireland and their importance for older people in particular. We wish to prevent any more closures in so far as we can. That is in everybody's interest. Senator O'Mahony also spoke about the history of post office closures over a long number of years. He pointed out that this is an emergency short-term measure. Clearly, there is potential with regard to the parcel service and also through the implementation of the Kerr and McKinsey & Company reports.
Senator Boyhan spoke about the Department of Communications, Climate Action and Environment having responsibility for the postal sector. That includes the governance of An Post and ensuring that the company is fully compliant with the code of practice for the governance of State bodies and governance functions, including in the statutory framework underpinning An Post. Following a Government decision early last year, responsibility for the post office network and implementation of the Kerr report and associated matters transferred to colleagues in the Department of Arts, Heritage, Regional, Rural and Gaeltacht Affairs. The Senator met with representatives of the IPU. They have been engaging with officials in the Department of Arts, Heritage, Regional, Rural and Gaeltacht Affairs on the matters raised. The outcome is that the McKinsey & Company and Kerr reports will have to be implemented together.
Senator Lombard spoke about the pricing structure and the comparison with the EU. We are below average is respect of the cost of postage stamps. The Senator also mentioned that the main players had appeared before the communications committee and expressed their concerns, including the importance of the service for rural communities and elderly people. There are some issues with viability in some rural communities, but this emergency legislation is necessary.
As I said earlier, the mails business is undergoing profound structural change, both here and internationally. Electronic substitution has had a significant impact on the letters business while also providing opportunities for growth in the parcels business. This trend is particularly apparent for large volume postal customers, such as banks and utilities providers. The trend has been evident for some years and it accelerated in 2016, resulting in An Post facing serious financial difficulties. The outcome for 2016 represents a doubling of year on year volume declines. As the mails business generates approximately two thirds of An Post's revenue the scale of decline is having a significant impact on the company's finances. In addition, the impact of the 2.5% Labour Court pay recommendation to An Post staff added €8.5 million to the payroll in 2016.
An Post has started a fundamental review with a view to identifying the strategic changes and restructuring necessary to maintain the company on a sound financial footing. The Government fully supports this review, the outcome of which is expected early in the second quarter of this year, and accepts that the company requires some financial headroom to be able to implement the findings of the review while continuing to deliver on its universal service obligations.
The Government has agreed to introduce this Bill as a matter of priority to repeal the price cap mechanism. This is the most viable option for supporting An Post in the short term while a restructuring plan is implemented. This is not a decision that was taken lightly. NewERA has conducted an in-depth review of the company in recent months on behalf of the shareholding Ministers and has confirmed the seriousness of the situation facing An Post. We all agree that An Post still has a number of strengths, including a strong brand and nationwide reach. Any restructuring plan will build on these strengths and position the company for the rapid changes in its external environment. Clearly it will take time to restructure and turn the company around and that is why it is imperative that this legislation is passed quickly in order to give the company the financial headroom to do this. The consequences of not introducing this legislation cannot be underestimated.
It is important to point out that despite the difficult financial situation, there is no threat to the mail delivery element of the universal service obligation of An Post. The company will continue to deliver post to every address on every working day. This amended approach to pricing aims to ensure that An Post can continue to fulfil its obligations in this regard.
I thank all Senators who contributed to this debate and look forward to further discussion on this matter on Committee Stage.
Question put and agreed to.
When is it proposed to take Committee Stage?
Next Tuesday, 7 March 2017.
Committee Stage ordered for Tuesday, 7 March 2017.
When is it proposed to sit again?
Tomorrow at 10.30 a.m.
The Seanad adjourned at 5.35 p.m. until 10.30 a.m. on Wednesday, 1 March 2017.