Thursday, 4 July 2019

Questions (2)

Brian Stanley


2. Deputy Brian Stanley asked the Minister for Communications, Climate Action and Environment if he will re-engage with both Eir and the ESB regarding the national broadband plan. [28663/19]

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Oral answers (13 contributions) (Question to Communications)

This question is about the national broadband scheme. Will the Minister re-engage with Eir and the ESB regarding this plan? I am asking him to look again at the current process which, by any measure, is banjaxed. We are looking at a cost differential of €2 billion. Over the past couple of years, an overall cost of €800 million has become €3 billion. Worse still, members of the public who are awaiting broadband and have been promised it for a decade are no further on. The only broadband being provided is being provided by private operators regardless of the Department's plan. The current process is not fit for purpose.

The procurement process in the national broadband plan is not yet concluded. Both Eir and the ESB, as partners, were bidders for the national broadband contract but withdrew their bids. At the time of their withdrawal, the Eir bid was comparable to that of the remaining bidder in the amount of €2.7 billion. Very detailed negotiations and due diligence were conducted and the Government agreed, on my recommendation, to the appointment of a preferred bidder. The award of preferred bidder is now subject to contract close, including the finalisation of financial and legal documents.

The possibility of allocating the national broadband State intervention to the ESB was considered as part of the published alternative options analysis conducted by my Department. The Attorney General advised that there would be significant legal risks in respect of both procurement and state aid law, were the State to mandate and fund directly, outside a procurement process, any economic undertaking. This would include a commercial entity like Eir or a commercial semi-State entity such as the ESB carrying out the national broadband plan.

Furthermore, engagement between officials of my Department and DG Competition, which is the Directorate General of the European Commission with responsibility for state aid matters, has clearly established that it is the view of DG Competition that it would not be possible to provide a State subsidy to an economic undertaking, such as the ESB or Eir, to roll out the national broadband plan without undertaking a new public procurement process.

However, the existing infrastructure owned by Eir and the ESB network will be used by National Broadband Ireland where this represents the most effective use of existing infrastructure at a local deployment level. I understand from their recent appearances at the Oireachtas Joint Committee on Communications, Climate Action and Environment that both entities will support this.

I thank the Minister for his reply. The reality is there are two main reasons for the escalation of costs. One is that Eir was allowed to cherry-pick in 2017 and that banjaxed the process and made it more expensive to service the remaining 500,000 premises. The second reason is that the Government is going with a bidder that has no infrastructure and does not own poles or a yard of ducting in the State. There are two providers that do. I do not hold any candle for either provider and would prefer for the ESB to have the contract from an ideological and practical point of view because that way we would have some democratic control. We are going with a provider without any infrastructure and it is questionable if it has the money. We are told there are letters of comfort from other investors saying that they can come up with the cash but this is a highly risky process.

I take on board the fact that Eir originally bid a much higher price but it is now saying that this can be done for a subsidy of €1 billion. At the very least, that needs to be probed further by Government and there should be engagement between Eir and Department officials. I ask the Minister to do that.

On the issue of state aid, the former Minister told me that the Government had to allow Eir to roll out broadband to those 240,000 premises, which then became 300,000. At the committee meeting last night, I asked the Minister's senior officials for a copy of the case that was put to the European Commission to explain to the Commission that Eir was being allowed to doughnut every circle of houses, village or cluster of houses and, in the process, completely derail the rest of the project. I also requested a copy of the instructions received back and the order from the European Commission saying Eir could not go ahead. I would like to see those.

Any state aid process must be done where the commercial sector cannot deliver it. If the commercial sector states it can deliver part of that, under a state aid process, one must allow access to that part and state aid can only be provided in the area which is not commercial.

National Broadband Ireland will be guaranteed access to infrastructure and the price at which they get that access will be regulated by ComReg. It is for ComReg to determine the price at which that is made available.

No contract would be signed if there was any question on this bidder's ability to fulfil the financial commitments of this process. It is absolutely a requirement to fulfil that commitment. As the Deputy knows, one feature of Eir's suggested alternative model is that there would be no such obligation on Eir to demonstrate financial commitment. The way that Eir proposed to do it more cheaply than its €2.7 billion offer was by abandoning all of the protections that were included, namely, the clawbacks, penalty clauses, performance requirements, distinct governance and upfront capital. The Deputy would be saying to me that all of those things were essential to show the State was protected and Eir is seeking to abandon them.

There were 200 hours of discussions with Eir regarding such protections and the State explained why those provisions were there. Eir decided then that if it was to fulfil those requirements it would be bidding €2.7 billion. It then withdrew. The company had ample opportunity to offer alternatives within the process but it withdrew from that process. Eir cannot now re-enter the process at this stage.

The Minister is correct that Eir cannot re-enter the current procurement process. The problem is that the current procurement process has run into the sand by any objective measure. The Minister is now entering into a cul-de-sac. He is going to end up in the situation depicted in the diagram of the governance structure prepared by his departmental officials. That is not going to work. It can be seen that sharks are lined up to take a bite. It will also be the case that National Broadband Ireland, NBI, will finish up with a board of nine people. This House, and ultimately the taxpayers, will be responsible for lobbing in almost €3 billion in cash. The people putting in €200 million will occupy eight positions on the NBI board. People who have sat on committees, never mind the board of a company, will know that they are completely outmanoeuvred at that stage.

The Minister referred to checks, controls and balances and protecting the taxpayer. There is little or no protection in the structure into which the Minister is entering. I state that sincerely. I do not mean that to be in any way derogatory. That is a definite cul-de-sac that the State and the taxpayer will be getting involved in, however. Officials from the Department, as well as successive Ministers, have told me that we had to allow Eir to cherry-pick these 340,000 and then 300,000 premises. The first time I saw that map I realised, as would anyone with a bit of common sense, that Eir was doughnutting the clusters and the villages. That is what it has done. Was it put to the European Commission that this action was going to banjax the process?

I call on the Minister to respond.

Did the European Commission respond? Did it overrule the Minister and state that he had to go ahead with this process?

I cannot allow this.

Can we have a copy of that document?

We are making no progress.

Deputy Stanley is absolutely right. Governance will be essential for taxpayers to get value for money. That is why we have insisted on a separate company, on a contract with performance clauses and penalties, on strong governance oversight and on upfront capital. Those are all conditions that Eir, the company that the Deputy seems to feel is the potential saviour of this project, refused to comply with. The very protections that the Deputy seeks to avoid, the so-called sharks, are the ones-----

Eir is not a shark.

-----that it is proposed will be abandoned in order to get a price that is sometimes quoted as €500 million, sometimes €1 billion and sometimes €1.5 billion. The only time that there was a contractual commitment to such a figure in the context of the procurement process it was quoted as €2.7 billion. That is the reality. Deputy Stanley is correct to state that we need strong governance. Let us examine the proposed alternatives, however, from those who suggest that this can be done less expensively. All those protections are being jettisoned.