COMMITTEE OF PUBLIC ACCOUNTS díospóireacht -
Thursday, 7 Oct 2021

National Treasury Management Agency - Financial Statements 2020

Mr. Conor O'Kelly (Chief Executive Officer, National Treasury Management Agency) and Mr. Ciarán Breen (Director, State Claims Agency) called and examined.

Chairman

This morning, we engage with the National Treasury Management Agency, NTMA, which also acts as the national State Claims Agency. Today's meeting will focus on the NTMA's 2020 financial statements, chapters 15 and 16 of the Comptroller and Auditor General's 2020 report and chapter 16 of the Comptroller and Auditor General's 2019 report. We are joined remotely from within the precincts of Leinster House by the following officials from the NTMA: Mr. Conor O'Kelly, chief executive officer; Mr. Frank O’Connor, director of funding and debt management; Ms Susan O’Halloran, chief legal officer; Mr. Ciarán Breen, director of the State Claims Agency; and Mr. Ian Black, chief financial and operating officer. They are all very welcome.

I ask members and witnesses to mute their microphones when not contributing so we do not pick up any background noise or feedback. As usual, I remind all those in attendance to ensure their mobile phones are on silent or switched off.

Before we start, I will explain some limitations to parliamentary privilege and the practice of the Houses as regards references witnesses may make to other persons in their evidence. As witnesses are within the precincts of Leinster House, they are protected by absolute privilege in respect of presentations they make to the committee. This means they have an absolute defence against any defamation action for anything they may say at the meeting. However, they are expected not to abuse this privilege and it is my duty, as Cathaoirleach, to ensure that privilege is not abused. Therefore, if their statements are potentially defamatory in relation to an identifiable person or entity, they will be directed to discontinue their remarks and it is imperative that they comply with any such direction.

Members are also reminded of the long-standing parliamentary practice that they should not comment on, criticise or make charges against a person outside the House, or an official, either by name or in such a way as to make him or her identifiable.

I ask the Comptroller and Auditor General to make his opening statement.

Mr. Seamus McCarthy

As members are aware, the National Treasury Management Agency is a very complex organisation with multiple important functions that extend beyond its original and core role in managing Ireland’s national debt. This wide range of functions is reflected in the scale and detail of the annual report and of the financial statements, which were published in June. Separate financial statements are provided for the different key functions.

Chapter 15 provides an overview of the NTMA’s operations in 2020, and highlights a number of key developments in the year.

As I have already stated, the NTMA’s primary function is to manage borrowing on behalf of the State. The results of that borrowing activity are reported in the national debt account. After a long period of relative stability, Ireland’s national debt increased significantly in 2020. At the end of the year, the national debt stood at €219.5 billion. This represented a net increase of €12.75 billion, or 6%, on the end of 2019 national debt. The increase in 2020 was largely attributable to the additional funding requirements as a result of the deterioration in the public finances related to the response to the Covid-19 pandemic. While the debt level increased, the cost of servicing the national debt continued to fall in 2020, due to refinancing of the stock of debt at the prevailing low interest rates. Total debt servicing costs in 2020 amounted to €4.7 billion. This was over €500 million less than in 2019.

The financial statements of the Ireland Strategic Investment Fund, ISIF, show a reduction of €2.3 billion, or 15%, in the value of the fund’s net assets between the end of 2019 and the end of 2020. The assets were valued at €12.7 billion at the year end and were held in two portfolios: a directed investment portfolio, accounting for 31% of the net assets and a discretionary investment portfolio, accounting for 69%. The loss incurred by the fund in 2020 was due to a drop of just over €3 billion in the value of the directed portfolio, offset by an increase of just under €700 million in the net asset value of the discretionary portfolio. The fall in the value of the directed portfolio in 2020 followed a drop in value of over €1 billion in 2019. These losses were related to the fund’s shareholding in Allied Irish Banks and Bank of Ireland.

In 2020, the Minister instructed the NTMA to make a €2 billion fund available within the ISIF discretionary portfolio to support medium and large enterprises affected by the Covid-19 pandemic, through the provision of lending on a commercial basis. Known as the pandemic stabilisation and recovery fund, this facility was availed of by four businesses in 2020, to a combined value of €237 million or just under 12% of the available fund.

The financial statements of the State Claims Agency record claims awards and settlements, and related expenses, totalling €430 million in 2020. This was similar to the level of expenditure incurred in 2019. These costs are recovered by the agency from the relevant State authorities within its scope of operation. The agency’s estimate of the value of claims liabilities outstanding at the end of 2020 was €4.03 billion. This has been rising steadily over recent years. Health sector bodies accounted for 92% of the estimated outstanding liability. This includes claims related to the HSE’s CervicalCheck programme. During 2020, the HSE received notification of 100 such cases, bringing the total notifications to 234. Of these, 22 had been concluded by the end of 2020. Also during 2020, the scope of claims within the agency’s remit was expanded to include the management of potential claims against private healthcare providers assisting in the public health response to the Covid-19 pandemic and in providing acute care generally under temporary contracting arrangements.

In late 2020, the Minister directed the NTMA to transfer assets to the value of €1.5 billion from the national surplus reserve fund, also known as the "rainy day fund", to the Central Fund of the Exchequer. This amount represented the total balance on the rainy day fund, originally transferred from the ISIF in late 2019.

Members will recall the circumstances that gave rise to the creation of the Ireland Apple escrow fund in 2018, into which Apple deposited €14.3 billion. In terms of value, this fund is on the same general scale as the ISIF. The NTMA has been delegated by the Minister for Finance to carry out, on his behalf, a range of functions in respect of the escrow fund. This includes production of the annual audited financial statements of the fund, which are published separately from other NTMA accounts. In line with the conservative investment policy agreed between the NTMA and Apple representatives, the escrow fund is invested in highly-rated, euro-denominated, fixed-income securities, or held as cash and cash equivalents.

These tend to be low-yielding investments. In the current interest rate environment, some of these assets yield negative returns. As at the end of 2020, the net assets of the escrow fund were €13.984 billion. This represents a decrease of €36 million from the 2019 net assets balance of €14.02 billion. The operating costs of the fund for 2020 were €7 million.

"State savings" is the combined named applied by the NTMA to a range of Government savings products offered to savers in Ireland. Such savings include balances held in An Post deposit accounts. These are accounted for in the financial statements of the post office savings bank fund. The level of deposits by savers in their An Post accounts has been growing steadily in recent years, notwithstanding the reduced returns that can be earned due to the prevailing low-interest environment. At end 2020, total deposits by savers were €3.9 billion, up almost 15% from €3.4 billion at end 2019. The fund’s net interest income and returns on investments have fallen significantly. This is in contrast to the operating expenses incurred, which have been relatively static at approximately €28 million a year. As a result, the fund has incurred deficits each year since 2015, with the exception of 2019. The deficit for 2020 was €13.8 million. As a result, the retained earnings of the fund continued to fall in 2020, standing at just under €72 million at end 2020. This compares with a peak of €190 million in retained reserves in the fund reported at the end of 2014.

Chairman

I thank Mr. McCarthy. Mr. O'Kelly has five minutes, which I understand he wants to share with Mr. Breen. Mr. O'Kelly's opening statement, which I read yesterday, is quite long. I ask the witnesses to take two and a half minutes each and to give a summary of the opening statement, which is available to members.

Mr. Conor O'Kelly

I thank the committee for its invitation to appear. I will summarise the opening statement, as the Chairman has suggested.

Starting with the funding and debt management area, which was the original business of the NTMA, it has been a pretty significant period post the pandemic and the unprecedented pro-cyclical response, which was the first pro-cyclical fiscal response in the history of the State, when the Government took the action it did post the pandemic. That action has had the impact of keeping a floor under the economy and that policy has been enormously impactful. All of that pandemic spending has been funded through borrowing and since the pandemic began we have borrowed just under €36 billion at an average interest rate of 0.16%, or just under two tenths of 1%.

The fiscal responses that were replicated right across Europe were complemented by the activities of the European Central Bank, ECB, and that is a critical point for everybody to understand in terms of the context and environment in which we are operating. It is not a single credit response from Ireland; this is Europe-wide. In that context, the European Central Bank's actions have been extraordinary. One of the things members will have read recently in the newspapers is that after the financial crisis, it took the ECB seven years to introduce quantitative easing but that, with the onset of the pandemic, it took only seven days for it to intervene with its bond-buying programmes. That is not far from being exactly what happened. The extent of the bond-buying engaged in by the ECB has been extraordinary. European sovereigns are estimated to have issued €1 trillion in total in 2020 and will issue approximately the same amount in 2021. The ECB's bond-buying programmes have been expanded to almost the equivalent of that issuance. The net issuance to investors is almost zero. In essence, the ECB is buying sovereign bonds almost one for one and that is what has allowed Ireland and other sovereigns to borrow so much so cheaply and effectively. The ECB, with its language and actions, is ensuring that that environment is likely to stay like that for quite a few years to come.

The other advantage we have is that we have termed out Ireland's debt significantly during this low-rate period. We have one of the longest maturities in Europe, at just under 11 years, and we have one of the smoothest profiles in terms of our debt. What I mean by that is that there is no one year where there is a significant disproportionate funding chimney or cliff . The environment has allowed us to do that as well. We also have significant amounts of cash in hand. As a result, the debt profile and locking in those low interest rates for a very long period gives us significant-----

Chairman

I have to interrupt Mr. O'Kelly because there is only a minute and a half left for the other speaker. My apologies but I have to try to keep it to the five minutes in order to allow questions afterwards.

Mr. Conor O'Kelly

Understood.

Chairman

We will hopefully cover most of these points in the back and forth. I had read the opening statements twice, and I know that members are diligent about these things. I respect the fact that Mr. O'Kelly has outlined the big picture in terms of the debt. Mr. Breen has just over a minute.

Mr. Ciarán Breen

The State Claims Agency, as our annual report has disclosed, was managing 12,000 active claims against State bodies in 2020, with an estimated outstanding liability of more than €4 billion. Some 3,500 of these relate to clinical cases, with an estimate of approximately €3 billion, and 8,500 non-clinical ones, with an estimate of €1 billion. We resolved more than 3,200 claims in 2020 despite the impact of Covid restrictions, which resulted in the courts being effectively restricted to trials relating to urgent personal injury claims for most of the year. Our focus during 2020 and 2021 has been on supporting the system's response to the Covid-19 pandemic, for example, by ensuring that indemnity was not a barrier to that response.

Chairman

I thank the witnesses. My apologies for having to cut them short. They will understand that we have to get through a lot during this meeting. I thank them for the information and for their opening statements. The lead speaker today is Deputy Devlin. He will have 15 minutes and every other speaker will have ten. I ask for members' co-operation, particularly we want to make sure that each member gets to contribute. If there is time for it later, I will allow a second round of questions.

Deputy Cormac Devlin

I welcome the witnesses and thank them for their opening statements and for the information provided to the committee in advance. I will start with the escrow fund. I note Mr. O'Kelly's comments in his opening statement. The total net assets in the fund decreased by an alarming €36 million in 2020 and, I think, €16 million in 2019. That brings the fund to €13.98 billion, which is approximately 87.6% of its original value. The matters before the European courts may take a few years - and Mr. O'Kelly might offer his own opinion on that - but in terms of the exposure for the State, if this were to decrease further or go on for a number of years does Mr. O'Kelly estimate the amount in the fund dropping further? Is there an exposure to the State if the fund is not managed and is decreasing in value all the time? There is an equal relationship between Apple and the NTMA in managing the fund. I ask Mr. O'Kelly to comment on that matter.

Mr. Conor O'Kelly

The fund is operating in a negative interest rate environment, as the Comptroller and Auditor General said earlier. While it is quite difficult to get our heads around it, even for those of us who are professionals in the market, this fund is investing in sovereign bonds for the most part and the lowest-risk securities. Its investment strategy is designed to protect the capital as much as possible in order that there is very little risk involved.

As I said in my statement, it is designed to produce a return of capital, not a return on capital. It is not investing for returns; it is investing to protect that capital. However, even in protecting capital in today's world, German Government bonds and even many Irish Government bonds trade at negative yield. We benefit from that when we are borrowing, of course, but when we are saving or investing, as we are in this fund, that is the other side of the same coin. In fact, when we designed and looked at the scenario analysis for this fund, when we first looked at the portfolio, we thought that the average yield on the fund, given the securities in which we were investing, would be minus 50 basis points. On a portfolio of €14 billion, that would be a loss of €70 million per annum, so it was designed at the outset to potentially lose that amount unless the interest rate environment changed, and it has not. That is the investment process.

I will ask Ms O'Halloran to talk about the timelines in terms of the Apple escrow, which is an important feature of determining our investment strategy. Of course, Deputy Devlin is correct to say that this fund is currently owned by Apple and Ireland together, but I will ask Ms O'Halloran to touch on the time span that we have ahead of us.

Ms Susan O'Halloran

The moneys that are in the escrow fund will remain in escrow until there has been a final determination of the appeal by the European courts. At the moment, we do not know how long that will be. What I can say to Deputy Devlin is that in July 2020 the General Court in Europe made its decision annulling, effectively, the Commission's decision and finding, therefore, in favour of the State and Apple, but the Commission subsequently appealed the ruling of the General Court to the European Court of Justice. That litigation is being managed by the Department of Finance in conjunction with the Attorney General's office and legal advisers. At this point, we do not have a clear picture as to how long it will take for that case to run its course. We suspect it will probably be another couple of years. We understand that there has not been a date set for the oral hearing as yet.

Deputy Cormac Devlin

I thank Ms O'Halloran for that. I presume, given that answer, that the NTMA will be back before the committee and we will be discussing escrow several times between now and a final determination by the European courts. Is there any liability for the State if the fund goes below a certain level? I accept that the NTMA is looking for a return, and it is not for investment purposes but just to manage the fund, but if that fund were to continue to fall, is there any stipulation in the agreement that there is any further liability to the State?

Mr. Conor O'Kelly

There is no liability to the State in respect of the value of that fund. The pot is the pot, and that has been agreed by all parties.

Deputy Cormac Devlin

I thank Mr. O'Kelly for that clarity.

I think the annual operating charge is €7 million per annum. It is a fixed charge, if I understand correctly. Will the witnesses elaborate on that? What does the charge entail and who effectively is administrating it?

Mr. Conor O'Kelly

Yes. There are a number of charges in respect of that annual fee for managing the money. We appoint in the public procurement process three global asset managers, if you like, to manage three separate tranches of that, and they are paid a fixed fee for doing that. Then we also have a custodian appointed entity, which is Bank of New York Mellon. It was appointed following a public procurement process. In the context of a €14 billion fund, €7 million is quite a modest fee in terms of a percentage of the assets under management and would be quite attractive for the kinds of assets we are talking about.

Deputy Cormac Devlin

Okay, and €7 million between four entities is not too bad either on an annual basis, but that is a different day's work.

As for the 2019 financial statements, there was a withholding tax of €2 million. Will the witnesses elaborate on that tax, please?

Mr. Conor O'Kelly

I will ask Ms O'Halloran again to come in, if she does not mind, to discuss that withholding tax issue.

Ms Susan O'Halloran

Certainly. What that relates to is US withholding tax. Under the US tax rules, as a general matter, withholding tax is deductible from interest from a US source that is payable to a non-resident. There are various exemptions and situations in which that does not apply. Deputy Devlin will see that the withholding tax that is referred to there was repaid and refunded in full to the fund in 2020. The reason it was deducted in the first place was that our escrow agent custodian, Bank of New York Mellon, has the obligation to make the deduction, so it is its obligation to look after that, and it notified the NTMA and Apple that it had made a mistake in its classification of the escrow fund for US tax purposes. It corrected that and it has confirmed the classification as an escrow settlement fund for US tax purposes, which effectively means that no US withholding tax will be deducted until such time as the escrow fund is released from escrow.

Deputy Cormac Devlin

I thank Ms O'Halloran for the clarity on that. I have one last question about the escrow fund. I note that there is a formal investment meeting or deliberation in November and that there was another one in 2019, if I am not mistaken. The use of the word "formal" suggests there are informal, ongoing discussions or meetings regarding this fund. Can one of the witnesses elaborate on that element, please?

Mr. Conor O'Kelly

There are daily discussions if necessary. With a fund of this size, with this sort of complexity and with the amount of securities that are owned, there could be daily discussions about issues that might emerge. We regularly have formal investment meetings of all parties, of Apple and Ireland, which are minuted, of course, throughout the year. We also have our own internal escrow Apple committee in the NTMA, of which I am the chair. That meets regularly and, of course, all those meetings are minuted also.

Deputy Cormac Devlin

I thank Mr. O'Kelly for that.

The following questions may relate to Mr. Breen of the State Claims Agency, or somebody else may answer them. I note that there were 12,175 active claims by the end of 2020. That was a 5% increase on the figure for 2019, with an estimated total of €4 billion in potential liability. Can somebody give a breakdown sector by sector? I note there was some breakdown. I think it was 92% for Tusla and the Department of Health and, I think, 6% encompassing the Departments of Justice, Defence and Education. Is there a breakdown of that 92% between the Department of Health and Tusla? Do the witnesses have that with them?

Mr. Ciarán Breen

I do not have those exact details with me, but I can make them available to the Deputy without any difficulty following this meeting.

Deputy Cormac Devlin

Yes, please. It would be helpful for all the various sectors. I know it has been broken down for us but it would be nice to see it broken down further. From the initial establishment in 2012, I think the liability at that stage stood at about €1 billion, so we have increased it rapidly over the years. What is the main reason for those continuous increases year on year, bearing in mind, as I said, that we had a 5% increase from 2019?

Mr. Ciarán Breen

There are a number of substantial reasons that has happened, one of them being that we have many delegations of additional business which occurred in the period to which the Deputy has referred. Critically, during that period we also had the alteration in the real rate of return in a case called Gill Russell v. the HSE. That had a very dramatic effect of increasing the potential liabilities and the actual liabilities of both schemes, but particularly the clinical negligence scheme. There are other issues.

If we look at clinical negligence, the costs of those claims are rising for a number of reasons. I mentioned the real rate of return. Life expectancy for many claimants has vastly improved. This is reflected in the amount of damages. For all of these reasons, it is a rising cost. We expect it to rise more significantly over the coming years as our actuaries have predicted and told us it will.

Deputy Cormac Devlin

I thank Mr. Breen. I note that 53% of the cases were resolved in 2020 without court proceedings being instigated, which is worthy of compliment. Mediation forms a large part of this. What other steps are being taken to reduce the liability and the number of claims year on year by the NTMA and the individual Departments and State agencies concerned?

Mr. Ciarán Breen

As the Deputy probably knows, we have two risk arms. One deals with non-clinical risks arising and the other deals with clinical risk. One of the principal issues we deal with is how we feed back into the system the lessons learned from the occurrence of claims. We work with Departments and healthcare facilities. The whole aim is to reduce the risk so that, most importantly, there will be no harm to people and in order that we can reduce the cost of claims to the State.

Deputy Matt Carthy

I thank our guests for coming before the committee. I have a short follow-on question regarding the Apple escrow fund. This might have been implied but will the witnesses clarify whether the management, and those managing the fund, have specific annual targets to meet in terms of reporting back to the NTMA?

Mr. Conor O'Kelly

Yes, they do. They have strict targets. They are measured against each other and we benchmark them against a European bond index.

Deputy Matt Carthy

Is the NTMA satisfied that even with the losses relating to the account, the targets are being met?

Mr. Conor O'Kelly

Yes. It is hard to believe but the fund is outperforming the benchmark by quite a considerable amount.

Deputy Matt Carthy

I thank Mr. O'Kelly. I want to speak a bit about the role of Davy as the NTMA's primary dealer. How long did it act in this capacity? When was it first appointed as the primary dealer?

Mr. Conor O'Kelly

The primary dealer system was first designed and originated in 1995 or 1996. Davy, along with four or five other Irish dealers, formed part of the first group.

Deputy Matt Carthy

It operated as a primary dealer since then until March of this year.

Mr. Conor O'Kelly

That is correct.

Deputy Matt Carthy

What review process was in place? Is there an annual review? Is there a tendering process? Is there a mechanism for expressions of interest? What mechanism is used to ensure that the right people act in this capacity?

Mr. Conor O'Kelly

I will ask Mr. O'Connor, who runs our debt management business, to answer this question. By way of introduction, of course we do. We have performance analysis and take account of an enormous number of variables in making decisions with regard to which primary dealers to choose to use for various syndications. We have constant reviews and appraisals of the performance of all of our dealers. Monitoring is a key part of what we do in the NTMA, and what the team does. Mr. O'Connor will give more detail.

Mr. Frank O'Connor

As Mr. O'Kelly mentioned, there are a number of performance reviews. In the late 1990s, there were approximately six primary dealers. Over time, we peaked at 18. At present, we have 14 primary dealers. All of these dealers have various metrics to meet in terms of hours of quoting, bond prices, their activity and their obligations to bid at auctions. We have a range of criteria to assess them. When they compete, it is on a syndication as this is the only time they earn fees. They do not earn fees for auction participation. We have a range of criteria. The dominant criteria are auction performance and taking down bonds. There is also secondary market turnover. There are other categories for their treasury bill performance, market research, how they deliver on roadshows, hours of quoting and compliance with quoting in the market. It will not surprise the Deputy to hear that every day there is interaction from our bond team and short-term team with all of these primary dealers. There are also regular meetings throughout the year. In the next week or two, we will have a senior executive meeting with the senior people in each of these institutions. Again, it all comes back to criteria throughout the year and constant review and feedback.

Deputy Matt Carthy

I thank Mr O'Connor. I will come back to Mr. O'Kelly. When did the NTMA first become aware of the scandal surrounding the Davy 16 and the sale of Anglo Irish Bank?

Mr. Conor O'Kelly

I am not sure what the exact dates and times were, if those are what the Deputy is looking for.

Deputy Matt Carthy

A general timeframe.

Mr. Conor O'Kelly

Once the Central Bank report came out, we were aware of it for the first time, as were many people. The story unfolded and the NTMA board took the action it did.

Deputy Matt Carthy

I am just trying to find the timeframe between both of these things. The Central Bank report was the initial finding that there was something amiss in terms of the Anglo Irish Bank sale. It was quite a bit before 8 March last. I am just trying to find the rationale for waiting until 8 March to make the decision to remove Davy as the primary dealer.

Mr. Conor O'Kelly

We heard about it for the first time, and we needed to understand it ourselves. That is the first thing. We needed to consider the implications. We needed to think about what the market reaction might be. Then, we needed to make a considered decision. All of this happened. I am not sure what the timeframe was. Perhaps it was a week or ten days, which is probably about the right time for a decision of this magnitude.

Deputy Matt Carthy

Does Mr. O'Kelly think there has been any implication for the NTMA? Has the NTMA suffered reputational damage from the link with Davy?

Mr. Conor O'Kelly

No, I do not believe so.

Deputy Matt Carthy

I thank Mr. O'Kelly. I have a couple of minor questions. I will be as brief as possible. Does the NTMA have an overall cost yet for the Moriarty tribunal? I know that it had to pay almost €1 million in legal fees to one participant. Does the NTMA have an overall sense of what it will come to?

Mr. Conor O'Kelly

I will let Mr. Breen take that. As Deputy Carthy knows, the State Claims Agency looks after our legal costings.

Mr. Ciarán Breen

I do not have the exact figure for the tribunals broken down. I can, however, tell the Deputy that in 2020 the total number of cost claims negotiated on the tribunals generally that our legal costs unit has been dealing with was 30. The amount claimed was €15 million. The amount agreed was €7 million, representing a 54% discount on the bills of cost submitted in respect of the tribunals. I can get to the Deputy a separate breakdown of these by tribunal.

Deputy Matt Carthy

To clarify, the NTMA received legal claims to the value of €15 million and negotiated them down to €7 million.

Mr. Ciarán Breen

That is correct.

Deputy Matt Carthy

Maybe there is a lesson there for some other bodies that come before us. It would be appreciated if Mr. Breen would give us a sense in writing at a later stage how much the tribunal has cost to date.

Considering the millions and billions we have been speaking about up to this point, this might seem small fry but I note the NTMA spent €51,000 on two staff parties in 2019 and more than €88,000 has been paid out to third parties for staff hospitality and entertainment. Is this considered to be good value for money?

Mr. Conor O'Kelly

We are always very careful with spending money on staff, but it is appropriate. There are 800 people in the organisation and occasionally we get together for a social gathering, whether at Christmas or whenever. All of the individuals always contribute themselves to any entertaining we do.

That is closely monitored by the Comptroller and Auditor General, in terms of all of our expenses, and rightly so.

Deputy Matt Carthy

Does Mr. O'Kelly know what the spend was for 2020 and 2021 in that regard?

Mr. Conor O'Kelly

There were not too many parties going on during the pandemic.

Deputy Matt Carthy

That is what I would have thought.

Mr. Conor O'Kelly

My guess would be that spend was close to zero.

Deputy Matt Carthy

We have a bit of time left in 2021 so perhaps we can get that figure up.

Mr. Conor O'Kelly

I certainly hope so.

Deputy Jennifer Carroll MacNeill

I will ask Mr. Breen about the clinical indemnity scheme. I spoke to the clerk and the Chair before the meeting. I have a personal interest in this matter but we think it is a matter of public interest and not a conflict of interest, as such. I wanted to mention that at the outset. I will ask about the scheme and, in particular, how it relates to maternity hospitals. There was a report by Mr. Peter Boylan in recent years about the scale of injuries that occur in neonatal situations, either to women or young babies, with life-altering consequences in some cases. The State Claims Agency manages the clinical indemnity scheme. What have been the costs of that scheme in recent years? Is the costs profile changing and, if so, how? I would like to understand that better. I will also ask about the national incident management system, NIMS, but I ask Mr. Breen to respond first?

Mr. Ciarán Breen

The clinical indemnity scheme is a particular challenge in terms of its cost, as the Deputy knows. As she mentioned, there have been incidents involving catastrophic injuries to babies and, indeed, generally in clinical negligence. The fact of the matter is that the costs associated with these cerebral palsy cases are very high and, obviously, there is significant injury to children and families have to carry the cost of future care and looking after children over a period of time.

The profile has not changed terribly over the number of years we have been dealing with it, except that the costs have continued to increase fairly dramatically. I will break down incidents of cerebral palsy for the Deputy, by way of an example. In 2016, there were 21 such cases. In 2017, there were 24 such cases. In 2018, there were 17 cases. In 2019, there were 27 cases. In 2020, there were 12. In this year to date, there have been six. That is a total of 107 to date. That shows that a fairly consistent incidence rate is being notified to us.

One of the difficulties that sometimes arises is that for families, the diagnosis of cerebral palsy takes some time and the claim is not made for many years until there is some knowledge as to how the child might be progressing, what the child will require and what his or her life expectancy might be.

Deputy Jennifer Carroll MacNeill

It is interesting that a similar number of cases has been reported. It does, of course, take time for a brain injury diagnosis of some kind to manifest and for people to become aware of it. I am interested in the risk notification by the hospitals. I do not presume to know about all cases, but in many of them, there are circumstances in which the injury could have been avoided. From the State's perspective, for the protection of its citizens and from a financial perspective, it wants to avoid as many of those cases as possible.

I have two questions, the first of which is around the risk register and NIMS. When something happens, it may not be apparent to the hospital or the parents that a brain injury has occurred. Are hospitals consistently reporting incidents that were risky and concerning, and where they possibly do not know the outcome? How is that translated then to what actually happens in terms of litigation? Let us imagine a difficult birth with questions around it. No one is sure how the child is. The child may or may not be in the neonatal unit. Are the hospitals consistently referring those things to the State Claims Agency in a way that allows the agency to analyse whether the hospitals have been responding correctly, sufficiently or accurately?

Mr. Ciarán Breen

I will give the Deputy an idea of the overall number of incidents, covering clinical and non-clinical. In 2018, there were 200,000 incidents on NIMS. There were 213,000 incidents in 2019, 211,000 in 2020 and there have been 150,000 to date this year. The Deputy is right. What normally happens is that when a clinical incident occurs in a hospital, particularly if it is a serious incident involving a child who, after birth, obviously has had some difficulties and is in a neonatal intensive care unit, for example, hospitals are generally good at advising such incidents to us. We pick up on them. As the Deputy says, they are a vital source of data in relation to lessons to be learned. Our clinical risk team is always engaged in an analysis of these incidents as they are notified to us.

Deputy Jennifer Carroll MacNeill

That includes where in the hospital the incidents are happening and the circumstances involved.

Mr. Ciarán Breen

There are some incidents which escape the net and are not advised to us. That happens. We have a key performance indicator system with all of our hospitals whereby we look at the rates of reporting to us and write to them if we feel they are falling short of what we believe to be acceptable for an acute hospital or a maternity hospital, for example.

Deputy Jennifer Carroll MacNeill

It is interesting that a very large number of incidents are reported. I know they are not all cerebral palsy cases or anything of that nature, and there is a much broader range of cases. I understand Mr. Breen was only giving that as an example. I speak to parents who have gone through litigation processes to secure funds for their children for the long term. In other cases, where there has been a death, parents have gone through the process because they felt there was no other measure of accountability with the hospital, that the hospital was not responding to them, the board had not taken the matter seriously and they were not being responded to. I do not want to name any but there have been cases in the media this year where things like that have happened. If, for example, somebody has a risky situation like that and it has been notified to NIMS, is there any obligation on the hospital to tell the parents and family?

Mr. Ciarán Breen

Is the Deputy asking whether there is an obligation on the hospital to tell the family it has reported the incident to us?

Deputy Jennifer Carroll MacNeill

Yes.

Mr. Ciarán Breen

I am not sure that there is a specific obligation on hospitals to disclose that they have notified it to us. Equally, I do not think there is any prohibition on a particular hospital telling parents that an incident has been reported on NIMS.

Deputy Jennifer Carroll MacNeill

The parents to whom I speak feel that litigation is the only way they can get a dialogue with, or a response from, the hospital. Are there ways in which we can change the clinical indemnity scheme to require, where an incident is notified, that the patient or parents of the patient be notified, just as a matter of basic courtesy?

Mr. Ciarán Breen

A great innovation that would meet some of the issues the Deputy has mentioned there is the pre-action protocol, which we have not had to date, whereby we remove the adversarial side of having to serve proceedings so that one would find oneself in a pre-proceedings environment where both plaintiff and hospital defendant can meet in a much calmer, less pressurised atmosphere, isolate and net out what are the particular issues for the hospital, and then move towards something like alternative dispute resolution like mediation, which we favour. That would be a great innovation.

Deputy Jennifer Carroll MacNeill

I totally agree. Has Mr. Breen found any of the hospitals resistant to that idea? It seems like such an obvious thing to do for the holistic care of their patients.

Mr. Ciarán Breen

In truth, we do not get resistance from hospitals in relation to, for example, anything to do with the litigation process. In the case of a brain-damaged infant, because they are such tragic cases, hospitals want us to deal with them as quickly as we possibly can. That is what we wish to do as well. We aim to get to the end of cases in the shortest possible period of time.

Deputy Jennifer Carroll MacNeill

The media reporting might sit slightly against what Mr. Breen is saying. I do not wish to contradict him, but the experience of parents with hospital management in general, rather than with the State Claims Agency, is somewhat different.

I am conscious that I have only 30 seconds. I do not know if we are getting a second round later on.

Chairman

Hopefully, we will. The Deputy has 30 seconds left. Does she want to keep going?

Deputy Jennifer Carroll MacNeill

I cannot think of anything to say. I will leave it at.

Deputy Verona Murphy

I thank the witnesses for attending. For the benefit of the committee and those watching, could Mr. Breen outline the process State bodies go through to notify the State Claims Agency that a claim is expected?

Mr. Ciarán Breen

The difficulty is that a State authority, and I am separating that now from healthcare institutions and hospitals, might not know that a claim will be made. Incidents occur and no claims flow from them. In all instances, what happens is that the delegated State authority or healthcare institution puts up on the national incident management system details of the occurrence of an incident. As I said previously, this is a really rich source of data for us and for the individual bodies, which can look at what their risk profile is, how claims against them arise and what they should be doing on a lessons-learned basis to stop claims from happening. The principal aim of that is to not cause harm to people.

Deputy Verona Murphy

Mr. Breen almost pre-empted my next question. There was a much-publicised incident at the Creagh water treatment plant in Gorey involving a breakdown that allegedly caused the poisoning of 52 people. Those are just the numbers reported. Is Mr. Breen aware if Irish Water or Wexford County Council informed the agency of pending claims?

Mr. Ciarán Breen

We do not deal with local authorities at all.

Deputy Verona Murphy

What about Irish Water?

Mr. Ciarán Breen

They are outside our remit.

Deputy Verona Murphy

What about Irish Water?

Mr. Ciarán Breen

Irish Water is also outside our remit.

Deputy Verona Murphy

It is outside the remit of the State Claims Agency.

Mr. Ciarán Breen

Yes, it is not a State authority delegated in respect of its claims to us.

Deputy Verona Murphy

That is news. I was not aware of that. My next question is probably not for Mr. Breen; it is may be for Mr. O'Kelly. In 2019, the NTMA appointed Ernst & Young to carry out an external review of the Strategic Banking Corporation of Ireland, SBCI. At the time, new loans were down by 68%. Has this review been completed?

Mr. Conor O'Kelly

The SBCI is not part of the direct responsibility of the NTMA. It is a separate legislative institution with its own board.

Deputy Verona Murphy

But the NTMA appointed Ernst & Young to carry out the review.

Mr. Conor O'Kelly

It uses our central resources. Our central procurement is a shared resource that the SBCI can access. We would have helped it with the procurement process, but I cannot-----

Deputy Verona Murphy

Mr. Black is present. Perhaps he could tell if this review has been completed.

Mr. Ian Black

I am no longer with the SBCI. I was interim chief executive and returned to the NTMA with effect from 1 September. I understand that the review has been completed.

Deputy Verona Murphy

Nobody from the SBCI is appearing before the committee.

Mr. Conor O'Kelly

It is separate but I am happy to ask the SBCI to come back to the Deputy and answer any question she might have.

Deputy Verona Murphy

My next question concerns the pandemic stabilisation and recovery fund. What is the percentage rate comparable for loans given in this regard from commercial banks?

Mr. Conor O'Kelly

The pandemic stabilisation and recovery fund can provide capital across the capital structure. It can lend money, which it has done in terms of debt instruments, and it can also put equity into these companies if that is what is required. It can do something in between - a convertible equity loan - whatever the company might need. The real attraction of the ISIF as opposed to a credit lending institution is that it can go across the risk capital spectrum, which very often is required, particularly in difficult circumstances. The second thing to say is that as mandated in legislation, the ISIF has a commercial bottom line and must produce a commercial return so we must act commercially. We would not necessarily compete on price with other commercial entities.

Deputy Verona Murphy

I understand that.

Mr. Conor O'Kelly

We might be more attractive because we might be prepared to take a bit more risk, increase the tenure for longer or take exposure to a sector that maybe banks or commercial lenders might not be keen to do during a pandemic. As a result, we have been able to help and provide financial support to many of the most impacted-----

Deputy Verona Murphy

I appreciate that. In the same vein, could Mr. O'Kelly just answer the question I am asking, which relates to the percentage rate if someone borrows from the pandemic stabilisation and recovery fund compared to a commercial bank?

Mr. Conor O'Kelly

They generally would be equivalent. We would not be competing on price, so the Deputy can take it that-----

Deputy Verona Murphy

What is that percentage rate?

Mr. Conor O'Kelly

-----whatever debt instrument we would be providing to a company in need affected by the pandemic, the rate of interest we would be charging would be equivalent to what would be charged in the marketplace by a commercial bank.

Deputy Verona Murphy

What is the percentage rate?

Mr. Conor O'Kelly

That depends on the circumstances. In the first instance, it depends on who one is lending to and its creditworthiness. It depends on whether collateral is secured or unsecured. It depends on the maturity - whether it is two, five or ten years. There is a host of reasons each case is different and has its own set of circumstances.

Deputy Verona Murphy

Mr. O'Kelly states that it is virtually the equivalent of a commercial bank on all those fronts.

Mr. Conor O'Kelly

Broadly.

Deputy Verona Murphy

The Minister for Finance said that a loan facility of up to €240 billion would be provided through the ISIF to the SBCI. The SBCI drew down €25 million of the facility in 2016. In 2017, another €25 million loan was converted into shares in the SBCI. These were issued to the Minister in accordance with the Act. In October 2020, the Minister subscribed for an additional €50 million shares at €1 each in SBCI. The subscription was paid for by an immediate conversion of the €50 million loan advanced by the ISIF. All shares issued by the SBCI are directly held by the Minister for Finance. That is correct. In December 2020, the balance of the available commitment under the ISIF-SBCI loan facility was €165 million. Why was a loan facility made available to the SBCI in October 2020?

Mr. Conor O'Kelly

I will get that answer for the Deputy. The SBCI needs equity. It is essentially acting as a bank. As it increases its loan portfolio, which it has done significantly and thankfully over the past few years - lending more and more to SMEs and providing the credit guarantee scheme during the pandemic - it needs more equity capital to support those loans. That equity capital comes from the ISIF as directed by the Minister for Finance. Essentially, there would be a board decision where it seek more capital, the Minister would agree that this capital was required and the ISIF would then be directed to transfer that capital.

Deputy Verona Murphy

Mr. O'Kelly heard me say that the amount of money available was €165 million at the time when it was increased. Why was there a loan facility?

Mr. Conor O'Kelly

I will have to come back to the Deputy. I am not sure. Perhaps we could get that question in writing and come back to the Deputy.

Deputy Verona Murphy

Could Mr. O'Kelly send a detailed response to that question to the committee?

The question is why a loan facility was made available to the Strategic Banking Corporation of Ireland in October 2020. In answering it, Mr. O'Kelly might outline the terms and conditions of the loan facility. If he wishes to revert to the committee in writing, that will be fine.

Mr. Conor O'Kelly

I will do that.

Deputy Alan Dillon

I welcome our guests. They referred to losses incurred by the Irish Strategic Investment Fund. At the end of December 2020, the ISIF had net assets of €12.7 billion, while in 2019, the figure was €15 billion. That amounts to a decrease of €3 billion in the directed investment portfolio, from €7 billion to €4 billion. Our guests stated that is due to a decline in the market value of AIB and Bank of Ireland shares. In respect of the directed investment portfolio, how many AIB and Bank of Ireland shares are held by the State and what is their current value?

Mr. Conor O'Kelly

I will let Mr. Black that question. It is approximately 70% of AIB shares and 14% of Bank of Ireland shares, which is currently in decline.

Mr. Ian Black

At the end of September, the AIB valuation was €4.5 billion, while the Bank of Ireland valuation was €600 million. The total figure was €5.1 billion. As for the percentage shareholdings, AIB has not changed and is circa 71%. The figure for Bank of Ireland is reducing. As was announced to the market, it was under 14% and is now under 11%.

Deputy Alan Dillon

Has the NTMA reduced its shareholding in either Bank of Ireland or AIB since the end of 2020?

Mr. Ian Black

As I said, AIB has not but the Minister has directed and engaged Citibank to reduce the shareholding in Bank of Ireland, and that process is under way.

Deputy Alan Dillon

In 2021, what was the return on the sale of Bank of Ireland shares? Have any AIB shares been sold to date in 2021?

Mr. Ian Black

In respect of AIB, there has been no change. The only change has been the value of the share price and that is publicly available. I have given the figures at the end of September. As for Bank of Ireland, the change has been in respect of the share price, which again is probably publicly available, and I have given the value at the end of September, namely, €600 million.

Deputy Alan Dillon

I will move on to the pandemic stabilisation and recovery fund. The ISIF made a fund of €2 billion available on the Minister's instructions in May 2020. As was stated earlier, the fund sought to support medium and large enterprises affected by the pandemic. One of the criteria was that the enterprises would have more than 250 employees. In regard to the fund of €2 billion that was established for the pandemic, why was €237 million paid to support only four businesses? What were the businesses and what were the terms of the investment?

Mr. Conor O'Kelly

In 2020, from when the fund was set up in May or June, we deployed €400 million to companies affected by the pandemic. So far in 2021, we have committed an additional €400 million to companies impacted by the pandemic. The Minister called it a stabilisation and recovery fund for a reason. Companies were going to need stabilisation and the economic cycle was going to be different for different sectors. As the Deputy can imagine, we have been able to support some airlines, some businesses in the tourism and hospitality sector that have been hit and some regional and indigenous businesses to help them grow post pandemic. I can give the committee a list of all the investments we have made that are in the public domain. Some of them have not yet been completed. We have committed that investment capital but, as the Deputy can understand, some of them are commercial and sensitive. Of those we have completed, I am happy to make a full list available. In total, we have invested €800 million in commitments on behalf of that fund.

Deputy Alan Dillon

How many companies in total have entered this programme of funding?

Mr. Conor O'Kelly

I would think about 12 to 15 companies have been assisted in various ways.

Deputy Alan Dillon

Does the NTMA expect to see a return on this investment?

Mr. Conor O'Kelly

Yes, all our investments are made on a commercial basis. We are mandated to make a commercial return and to have economic impact for Ireland. It is what we call our double bottom line. That is the legislative impact. It is very difficult to predict the future in respect of investing when we are taking risks but a lot of these are fine companies that have been affected by the pandemic. They were fine companies before the pandemic hit and they will be fine companies after the pandemic. The role the Minister asked us to play was to ensure these big employers and big indigenous Irish companies were not knocked out by the pandemic and could recover, maintain those jobs and grow into the future.

Deputy Alan Dillon

Our aviation sector has been significantly impacted. There has been investment in Aer Lingus and the DAA. Will Mr. O'Kelly outline the figure in the pandemic stabilisation and recovery fund portfolio that has supported those two businesses, specifically?

Mr. Conor O'Kelly

We lent Aer Lingus €150 million - that is in the public domain - and we are in discussions with Aer Lingus to see if it needs further assistance, which we may be able to help it with. As for the DAA, there was a €40 million investment in a bond.

Deputy Alan Dillon

The Minister last year directed the NTMA to transfer the balance of €1.5 billion to the national surplus reserve fund and the Exchequer . What is the status of the fund? The budget is upon us and we need to get an understanding of the status of our rainy day fund.

Mr. Conor O'Kelly

As the Comptroller and Auditor General mentioned at the beginning of the meeting, the rainy day fund that was set up had €1.5 billion in it at its peak. Of course, it was activated because of the pandemic, so it was set up for exactly that kind of event. That €1.5 billion, in its entirety, was paid back to the Exchequer during the pandemic, so there are no funds in the rainy day fund as we speak.

Deputy Alan Dillon

Was there a cost to the State in converting that asset into cash in order that it could be transferred back into the Exchequer?

Mr. Conor O'Kelly

No.

Deputy Paul McAuliffe

I thank our guests for their attendance. On the pandemic stabilisation and recovery fund, the figures available to us in advance of the meeting suggested there were four companies, totalling €237 million of the €2 billion fund. Mr. O'Kelly confirmed there are 12 companies, with a figure in the region of €800 million. Is that correct?

Mr. Conor O'Kelly

Yes.

Deputy Paul McAuliffe

I do not mean this as a criticism, but why have we used only 40% of the fund? Was it a response from the market? What roadblocks were in place against companies accessing the fund?

Mr. Ian Black

In the press release we issued at the start of September, the total investment - both direct and indirect - across the pandemic stabilisation and recovery fund was stated as €613 million and involves 30 businesses, platforms and projects. Mr. O'Kelly referred to the direct investments, but there are also indirect investments.

Deputy Paul McAuliffe

Can Mr. Kelly clarify the €800 million and the €613 million figures?

Mr. Conor O'Kelly

We cannot make public the commitments that have not yet been drawn down and finalised. There is, therefore, a lag between those. Let us take the €800 million as commitments. On the Deputy's question on why more has not been drawn down. When the fund was set up, I said at the launch that I hoped none of the money would be drawn down. This was not a target. A fund worth €2 billion was made available in the hope that it would not be needed, not that it would be needed. This was designed for companies that ran into difficulty due to the pandemic. The longer companies struggled and the more sectors that struggled, the more we would be needed. As we see from all the available data, the economy is, thankfully, recovering quickly in the majority of sectors. There are only a minority of sectors still affected by the pandemic, including the travel, tourism and hospitality sectors. One can, therefore, imagine that they tend to be the focus but it is my hope that the funds will not be drawn down.

In addition, we are seen as an investor of last resort. These companies are well managed and have their own shareholder base and financial providers. If they need money, they can approach other providers of capital; it does not have to be the Government. The Government is there as a safety net and the provider of investment capital of last resort. Many companies are incredibly well managed and in good shape, and do not require the State's help thankfully. My hope is that there will not be much more drawn down and we will get back to the original business of the Ireland Strategic Investment Fund, which is investing in key priority themes such as housing and regional development.

Deputy Paul McAuliffe

Will the remainder of that fund remain available for other sources of finance across the portfolio?

Mr. Conor O'Kelly

Absolutely. The idea is that we will return our focus onto housing, climate change and regional businesses.

Deputy Paul McAuliffe

Mr. O'Kelly outlined that some sectors will be impacted longer than others. The four companies we have been made aware of in that regard are: Aer Lingus with a €150 million loan; DAA, with a €40 million loan; Staycity, with a €30 million loan; and Finance Ireland, with a €17 million loan. How long does Mr. Kelly expect those arrangements to remain in place? Will those companies seek to transfer those debts to a commercial arrangement with no State involvement?

Mr. Conor O'Kelly

I certainly hope so. That is the hope of the NTMA and the companies with which we are in dialogue. One can imagine from both points of view, that such emergency funding is not wanted. We do not necessarily want to be a long-term investor and they do not necessarily want us to be a long-term investor. Many of the instruments we have put together are designed to allow us to get repaid quickly and it is hoped we can be taken out of the equation. We can then reinvest that capital elsewhere, as needed by the economy. That is what the fund is designed to do. It is called an evergreen fund that continues to grow, produces returns and returns capital, and can then move into areas where there is less capital available and more State capital is required. That is the long-term objective.

Deputy Paul McAuliffe

That is another good example of how so many businesses were supported throughout the pandemic by State intervention.

I will turn to the State Claims Agency, for which there has been an alarming increase in its outstanding liability. The agency's outstanding liability is now three and a half times what it was in 2012. Why has the outstanding liability increased to such a degree?

Mr. Ciarán Breen

As I said in response to a previous speaker, there are a number of reasons for that increase. One reason is that the volume of claims has increased as we had new delegations. One feature of the State Claims Agency that is probably not the case with a general insurer is mass actions. We have a number of mass actions and, in fact, 30% of the entire non-clinical portfolio is based on mass actions. Those mass actions increase the volume of claims and, as I said earlier, there is an inflationary effect of the decrease in the real rate of return - the personal injury discount rate - on the damages. I agree it is challenging and this challenge will increase. We know that from what our actuaries, who look at the schemes, are telling us. We are doing everything we can to defray that and it is one of the great challenges facing us.

Deputy Paul McAuliffe

Mr. Breen is correct in that mass actions are a significant portion of the portfolio, and it is interesting to note that figure of 30%. I will now turn to two areas where such liabilities do, or might, exist. During the pandemic, the governance arrangement was extended to private hospitals and the liabilities during Covid were also taken within the remit of State Claims Agency. Does the NTMA have a picture of what claims are outstanding in those private hospitals during the first phase of the pandemic?

Mr. Ciarán Breen

We do not at this stage, and there is no surprise in that. Normally, as the Deputy will know, the Statute of Limitations in regard to claims is, generally, two years other than for infants and some other special categories. We tend not to see the effect of the coverage of something like that until late in that cycle. While we have seen some claims, there has not been a significant number.

Deputy Paul McAuliffe

That is also related to the number of claims in 2019 compared to 2020. One might have thought that when everything was shutting down, the number of claims would also have been affected and been reduced, however, it seems to be the same figure. Does Mr. Breen expect a reduction in the number of claims in 2021 and 2022 as a result of less activity during the pandemic or does he believe there will be an increase? I welcome any insight he might have into that at present

Mr. Ciarán Breen

The Deputy has made a good point. Between 2016 and 2020, there was a 36% increase - which includes mass actions - in the number of clinical claims and there was a 21% increase in the number of general claims. The Deputy might be interested to know that in 2019, we had 2,375 non-clinical claims. That figure dropped off to 1,958 in 2020, which equates to a 17% decrease. The Deputy is correct in that we expect that figure to pick up as the courts get into their stride again and we return to normality following the intense period of the pandemic.

Deputy Paul McAuliffe

The other area the term "a mass claim" would be used is in the claims relating to the CervicalCheck screening programme. I understand the State Claims Agency was notified of 234 claims against the HSE regarding the CervicalCheck programme in 2020, which was an increase from 134 in 2019. Will Mr. Breen speak to us about the cost to the State for the 22 cases that have concluded to date in the CervicalCheck litigation?

Mr. Ciarán Breen

It might help the Deputy if I were to update his figures. The current figure is 305 cases for CervicalCheck. This is broken into 245 cases from claimants and an extra 60 cases from family members in regard to issues such as psychological injury. Forty-one cases have concluded, 33 of which were in respect of claimants and eight in respect of family members.

On the matter of outstanding liability for the State against those claims, the Deputy must understand that our liability - the State's liability - is limited almost exclusively to the non-disclosure element that has been involved in that. In the case of the late Ruth Morrissey against the HSE, the High Court decided that that figure was €10,000. The laboratories carry the principal liability and, therefore, the State's liability is pretty well capped at the amount that pays for non-disclosure. As the Deputy may know, we also have a separate Government scheme whereby women can apply directly on a non-disclosure basis and get a payment without going to court.

Deputy Paul McAuliffe

Unfortunately, I have run out of time but perhaps subsequent speakers will pick up the point. Is Mr. Breen saying he cannot indicate to us the total cost to the State of those 22 cases at this point?

Mr. Ciarán Breen

No, I can. I can send that on to the Deputy and give the total cost to date of what we paid in both compensation and legal costs. I can send that separately.

Deputy Paul McAuliffe

I thank Mr. Breen.

Deputy Catherine Murphy

I want to go back to the matter of the State Claims Agency and the contingent liability. Mr. Breen tells us that there are 12,000 active claims. Is a solicitor involved in every one of these cases to get them to the point that they arrive at the State Claims Agency?

Mr. Ciarán Breen

In respect of non-clinical claims, as the Deputy possibly knows, it is a prerequisite for all claimants to go via the Personal Injuries Assessment Board, PIAB. Normally, a number of claims will go through that route and will be settled, or claimants will opt out of that scheme and the claims will be contested. Clinical claims do not fall within the ambit of PIAB. Those are the two routes.

Deputy Catherine Murphy

Is a solicitor involved? How do claims become active and arrive at the State Claims Agency? I am referring to clinical claims.

Mr. Ciarán Breen

They would exclusively be where somebody has gone to a solicitor and initiated a claim. The claim would come into a hospital or it might come directly to us from the solicitor.

Deputy Catherine Murphy

I thank Mr. Breen. I want to be efficient with the time so I would appreciate if we can keep the answers short. The contingent liability is in the region of €4 billion but that does not crystallise until the claim is actually paid. Claims are paid as they arise. Will Mr. Breen give a breakdown, for the last three years, of the number of claims that crystallised and were mediated as opposed to going through the courts?

Mr. Ciarán Breen

Currently, the contingent liability is €4.3 billion. That breaks down to €3 billion for clinical and €1 billion for general. Of the €3.2 billion that relates to clinical, €2.3 billion, or 70%, relates to catastrophic injury claims. Regarding mediation, in 2020, damages were paid in 25% of cases on the clinical side. In 2021, that has jumped to 37%.

Deputy Catherine Murphy

What accounts for that change?

Mr. Ciarán Breen

When we found ourselves in the pandemic, where the courts were hearing nothing but urgent cases, we all looked for alternative ways. We have always been a proponent of mediation. Plaintiffs' lawyers found that as an effective means of engaging with us. We want to build on that because we believe that it is the best way to solve these cases.

Deputy Catherine Murphy

It is heartbreaking to see a family on the steps of the courts after years of legal wrangling. We saw such a case this week. No amount of money can undo damage that is done at birth, in the case of cerebral palsy. Where that damage is caused by neglect or not following up on something, people want apologies and a mediated settlement that is about more than the finances to cover the cost of future care. What staff does the State Claims Agency have?

Mr. Ciarán Breen

In total, we have a staff of approximately 165 people across the entire range of our activities.

Deputy Catherine Murphy

How many of those have expertise in mediated settlements? Are people dedicated to that outcome or is it done right across each claim?

Mr. Ciarán Breen

We have roughly 35 people on the clinical side and about 30 on the general side. Most of our staff on the clinical side have been trained as mediators. Therefore, they have been through a process of formal training in mediation. We are big proponents of mediation as an alternative to the courts system.

Deputy Catherine Murphy

It is interesting that the pandemic changed the dynamic. We have had engagement at previous meetings of the Committee of Public Accounts about the value of mediated settlements. It is more cost-efficient and it is also the least damaging way to deal with claims from the point of view of protracted litigation and so on, and also from the point of view of the kind of engagement that should happen with people where there is a legitimate claim. The number of mediated settlements increased. Mr. Breen says the State Claims Agency is going to build on that. The absence of the court route seems to be the reason this ended up being the case. When the courts open up, how will the State Claims Agency avoid going back to the practice that obtained before the escalation in mediated settlements?

Mr. Ciarán Breen

That is a good question. The Deputy is right that the pandemic forced good behaviours. I do not mean good behaviour from us because we have always been a proponent of mediation, but for some plaintiffs' lawyers, it was an eye-opener, that this was a better system and one can get to a settlement much quicker. When I referred to building on it, as I said in response to a previous speaker, if we had the pre-action protocol, there would be no issuing of proceedings and no going to court-----

Deputy Catherine Murphy

What is stopping that?

Mr. Ciarán Breen

-----and we would be going straight to mediation. Getting the pre-action protocol is the key in future.

Deputy Catherine Murphy

What is stopping the pre-action protocol?

Mr. Ciarán Breen

The Department of Justice sought advice from the Office of the Attorney General and it has now gone back to the Department of Justice. There may have to be an amendment to some legislation, which has unfortunately delayed things.

Deputy Catherine Murphy

Mr. Breen and I may have met at a meeting of this committee in May 2018 because that meeting prompted me to ask a parliamentary question about contingent liabilities. The answer stated:

The HSE has not recognised any contingent liabilities in the last ten years. This is mainly due to the fact that the nature of such liabilities for the HSE mainly arise as a result of current ongoing litigation. Due to this, it is difficult to determine a) if payment will be probable ...

It continues by referring to some test cases having gone through the courts. Does Mr. Breen know what those test cases might be? Have they concluded? In that reply, the mindset of the HSE seems to be that contingent liability is exclusively related to current ongoing litigation. Has Mr. Breen noticed a culture in this regard in the HSE, given that mediation is not even included and the process is predicated on ongoing litigation? Am I reading that wrongly?

Mr. Ciarán Breen

The Deputy is probably referring to something slightly different. There is a fund in the health Vote for the Department of Health in relation to the satisfaction of clinical indemnity scheme and non-clinical indemnity scheme claims which affect the HSE.

What is being referred to in the letter is probably litigation against the HSE which does not relate to that fund. That is probably a correct interpretation. I do not know whether the Comptroller and Auditor General wishes to add to that.

Deputy Catherine Murphy

The NTMA takes on cases for the HSE. The HSE does not do it.

Mr. Ciarán Breen

No. All of its cases that involve personal injury, whether clinical or non-clinical, are delegated to us.

Deputy Catherine Murphy

Does the Comptroller and Auditor General have any comment on that? It would be useful.

Mr. Seamus McCarthy

I do not have any detail on it, but we can certainly look into the matter and revert to the Deputy outside the meeting.

Deputy Catherine Murphy

I thank Mr. McCarthy.

Chairman

I will now suspend the meeting for a short break. The first member to contribute when we resume will be Deputy Munster.

Sitting suspended at 11.01 a.m. and resumed at 11.08 a.m.

Chairman

Deputy Munster has ten minutes.

Deputy Imelda Munster

I thank the Chairman. To go back to the discussion prior to the break, Mr. Breen stated that people who would usually end up in court entered mediation with the State Claims Agency because they could get quicker resolutions.

If we take the example of CervicalCheck, there is clearly an inadequacy in the tribunal process? Is that not the case?

Mr. Ciarán Breen

No, I do not think so. Nine claims have been lodged there. One claim left purely for legal reasons related to the remit of the tribunal, but there are eight claims before the tribunal. The laboratories, the State Claims Agency and the women and their families are within that process. The process needs to be given time to see how it advances.

Deputy Imelda Munster

There are eight claims in the tribunal process. How many cases are there?

Mr. Ciarán Breen

I gave the exact figures earlier. There are 245 cases of claims from women - not including their families - for psychological injury. That is the total number. They are all at different stages. Some of them have proceedings issued and others have not. They are at different levels in the litigation process.

Deputy Imelda Munster

Given the number of cases, CervicalCheck and others, that end up in the courts, is there a broader problem with the State's approach to redress or mediation?

Mr. Ciarán Breen

No, I do not. Mediation is dependent upon two parties which means we, the State or the laboratories as defendants in the context of CervicalCheck, and plaintiffs, that is, lawyers, must enter into that process. There has been a good measure of success. For example, if we look at the 41 cases concluded on CervicalCheck, mediation was offered in 28 cases and took place in 23 of them. Quite clearly, it was a good process and much better than a court judgment or women having to give evidence in court.

Deputy Imelda Munster

Of those cases, how many ended up in court?

Mr. Ciarán Breen

After Vicky Phelan's case, which initially went to court but was settled outside of court, there was only one case which went right through the courts process, that of the late Ruth Morrissey. The Deputy probably knows there were some very special features attaching to that case.

Deputy Imelda Munster

The initial message sent out to the women was they would not have to go to court. Is the €4.3 billion liability calculated based solely on cases taken or does it include cases the State Claims Agency believes may arise?

Mr. Ciarán Breen

That is based on cases that have been intimated. If we take all of the 12,000-odd cases notified to us, we are saying that if one were to liquidate the damages that might be paid in those cases and costs tomorrow morning, that €4.3 billion is what would be paid. Of course, that sum will be paid over a long period of time. It is an estimate.

Deputy Imelda Munster

Just for clarity, Mr. Breen is saying that figure would include potential cases. Is that correct?

Mr. Ciarán Breen

It includes cases which have been started and are in the process.

Deputy Imelda Munster

Is the State Claims Agency operating under the assumption that the CervicalCheck tribunal will not work and every woman may have to go to court?

Mr. Ciarán Breen

No. Our stated preference is that the tribunal process is a much better process for the women and their families, in that there is privacy and restoration of justice in those cases. For us, it would be a far better process. Our hope is that more women would go into that process over an extended period of time and the cases would be dealt with there, in the way I have said.

Deputy Imelda Munster

Is Mr. Breen confident that would be the case?

Mr. Ciarán Breen

Confidence is a different issue because one is dependent on what other people will do. My absolute hope is that we would have the tribunal process deciding all or the bulk of those cases.

Deputy Imelda Munster

I have a question for Mr. O'Kelly. It had been reported that Mr. O'Kelly said the State could borrow billions more to build houses. How much more could we commit to borrowing?

Mr. Conor O'Kelly

As the Deputy can imagine, I am not sure that is exactly the context or exactly what I said. I was asked previously whether the State could continue to extend its borrowing for matters such as housing. I was trying to say that when one is investing for capital and infrastructure investment, the market and credit rating agencies look on that much more favourably than current expenditure. It is important for us to get our current expenditure, our household budget if you like, back in balance and in surplus. Investors give a little bit more room for capital expenditure, especially if it is productive and recognising there is a housing crisis. There is some room there but our debt has become quite elevated. When we come through the pandemic, we will have borrowings of between €250 billion and €260 billion. The more elevated the debt, the more prone one is to future risks. One has to bear in mind that one has less and less capacity, for obvious reasons.

Deputy Imelda Munster

Mr. O'Kelly believes there is still scope to borrow more, given the low interest rates and such.

Mr. Conor O'Kelly

Critical infrastructure has to be looked on as-----

Deputy Imelda Munster

Can Mr. O'Kelly give a figure for how much more we could borrow?

Mr. Conor O'Kelly

I cannot really because it really depends on how the market and central banks change and the approach. For now, I am reasonably sanguine about our ability to invest a little bit more for those capital structure and investment infrastructure projects, such as housing.

Deputy Imelda Munster

Given the current state of play, how much would-----

(Interruptions).

Chairman

We have lost the connection to Deputy Munster.

Deputy Imelda Munster

I apologise. I ask Mr. O'Kelly for a rough figure or estimate. Given the current state of play, if he was asked how much extra the Government could borrow, what would that figure be?

Mr. Conor O'Kelly

To build 33,000 houses per year, one needs €11 billion per annum. The State has committed to €4 billion per annum to housing. Huge capital requirement from the private sector and investors will be needed to deliver on those 33,000 units, which is in the Housing for All plan. That €4 billion is a larger number than the State has ever invested before. I think it is okay to borrow those kind of sums annually for housing.

Deputy Imelda Munster

Could the State borrow a bit more, given we are in a housing emergency?

Mr. Conor O'Kelly

I cannot make a comment on that. I could not give the Deputy a figure. It is a policy matter. One has to weigh up the risks.

Deputy Imelda Munster

With Mr. O'Kelly's experience, if the Government asked him today how much additional funding it could borrow, what would be his response?

Mr. Conor O'Kelly

My response would be that with debt this elevated, we have to be very careful in terms of increasing the amount of borrowing we have. If we were going to borrow more for capital investment, we would have to be sure we were offsetting that somewhere around our current expenditure profile. I would be much more focused on getting the current spending down and making sure that gets back into balance. If that was the case and I could be confident we would be back in balance in the budget, I would be prepared to give a little more room, but there are so many things. One cannot keep borrowing for every project. We have to get the books back in order at some point.

That is not really for the benefit of the bond gods or anything like that, as I have said before. One of the reasons we could react so quickly to the pandemic and pull so hard on the fiscal lever was that we were in such good shape. We had budget surpluses for the two years coming into the pandemic. That is why we were able to respond as quickly as we did. We will have to prepare the economy for these cycles long into the future.

Chairman

We are over time. I will let Deputy Munster back in for a second round later.

Deputy Colm Burke

I thank the witnesses for their presentations and for dealing with the queries raised thus far. Mr. Breen said there are some 12,000 active claims. Of that number, how many does he expect will result in compensation being paid? What is the timeframe from when the NTMA first receives notice from a solicitor to getting a case off the table? How long is that taking? The other figure I am looking for is the amount that has been paid out per annum on medical negligence claims over the past five years. The overall figure is €4 billion in respect of pending claims, but how much was paid out per annum on claims going back five years and what is expected to be paid out in 2021?

Mr. Ciarán Breen

On the final point, I do not have figures with me going back five years but I will send that information to the Deputy. The estimated cash projection for the clinical negligence scheme for next year is approximately €540 million.

Deputy Colm Burke

Can Mr. Breen give me the figure for five years ago? I want to find out the scale of the sudden increase that has occurred.

Mr. Ciarán Breen

I will write to the Deputy about that. One of the features in this regard, which I referred to previously, is the Court of Appeal decision in 2015 regarding the real rate of return. That has had a dramatic effect in respect of clinical negligence, particularly catastrophic injury cases.

Deputy Colm Burke

What is Mr. Breen's estimate of the percentage of the 12,000 cases pending on which there will be payouts? I know he cannot give me exact figures but I would like a broad idea percentage-wise.

Mr. Ciarán Breen

If we look at the separate statistic for the number of cases where we actually go to court, it is just under 2%. Most of our cases are settled at some point in the cycle. The only time we would usually go to court is in cases where there is a very substantial issue in regard to liability or causation or where we simply could not settle for the sum claimed.

Deputy Colm Burke

My question is about the 12,000 pending cases. Of that number, on what percentage does Mr. Breen believe there will be payouts?

Mr. Ciarán Breen

I would say we will be paying something on the bulk of them.

Deputy Colm Burke

I did some research before this meeting and have some corresponding figures for other jurisdictions. Between 2016 and 2020 in Canada, for example, there was a total of 3,806 resolved legal cases. Of that number, 44% were judgments in favour of the plaintiff, 5.9% were in favour of the physician, 1,384 cases, or 36.4%, were settled with the plaintiff, and 2,156, or 55.6%, were dismissed. In Sweden, €61 million was paid out in claims in 2020. Why is there such a disparity in the figures for Ireland in regard to claims? Is it the case that there is a far higher level of mismanagement here? Is there a problem with the way we manage patients in our hospital system?

Mr. Ciarán Breen

I do not think so. The Deputy made some comparisons with countries that are not common-law jurisdictions. If we look to the UK, which is a better comparator, we see that in its accounts for 2021, €2.3 billion has been paid out under its clinical negligence scheme and the other non-clinical negligence schemes in operation there. In a common-law jurisdiction such as ours, where there is a court process, there is a significant element of any claim that is compensation and then we have all the costs, of both plaintiff and defendant, on top of that. That is a unique feature of common-law jurisdictions and, therefore, making comparisons with other European countries or Canada is not quite the same.

Deputy Colm Burke

On the point about reaching agreement on claim amounts, actuaries are brought in to see what is required in a particular case to support the plaintiff. There is a calculation of life expectancy and how much he or she will require per year. Does Mr. Breen agree we are facing a problem now in regard to compensation because any legal practice that has more than €1 million in its current account will be charged a penalty of 0.5% by its bank? A solicitor's client account would have quite a lot of money in it because funds are coming in for the purchase of houses, for instance, and the administration of estates that are awaiting tax clearance before the moneys can be distributed. In a situation where money is paid out in, say, an infant case, how can that now be managed? The funds obviously have to be invested wisely and there are restrictions on where they can be invested. Will there now be an added cost in the form of the penalties being imposed by the banks?

Mr. Ciarán Breen

In the case of a brain-damaged child, he or she is made a ward of court. The moneys we pay in compensation are paid directly into court and are managed by an investment committee in the wards of court system. That committee will be looking for the best return it can get on the moneys. Investment is subject to provisos, such as the one to which the Deputy referred. I spoke about the real rate of return. There is pressure in that regard. As the Deputy may know, the real rate of return in respect of Northern Ireland, Scotland, England and Wales is lower than it is in the Republic right now. We are facing the prospect of litigation on that particular point in the months ahead.

Deputy Colm Burke

The problem with the Office of Wards of Court, in my experience, is that less money is being paid out than was paid in because of the restrictions it now faces. Is this new challenge being looked at in terms of how it can be managed into the future? Everyone wants to make sure that people who have suffered catastrophic injuries are adequately compensated and have sufficient revenue available to them to provide the level of support they require. My experience of the Office of Wards of Court, and I am looking for clarification on this, is that it has delivered a negative return on investments.

Mr. Ciarán Breen

Obviously, I cannot speak for the Office of Wards of Court but I know that, historically, it was achieving in or around a 3% return, as advised to us. The Deputy is right that none of us wants to see a situation where the moneys for the future care of any child would run out over that period.

If we have the periodic payment or the statutory scheme in place, it is a much better scheme because we get the transfer of that investment risk to the State - us - which would be the provider of the periodic payment orders, PPOs.

Deputy Colm Burke

What is the take-up of the periodic payment at the moment and what is the NTMA's view in regard to this issue?

Mr. Ciarán Breen

The situation is that, unfortunately, in a High Court case involving an infant, the High Court struck down the index used - the harmonised index of consumer prices - as being a suitable index. Following that case, the Minister for Justice has established an interdepartmental group which is looking at that index with a view to revising it and making it a more suitable index for the making of PPOs. There are six old PPOs that are in place in regard to the original index. In the meantime, we are making interim payments wherever we can for families for three, five or ten years.

Deputy Colm Burke

Does Mr. Breen think we need to look at a more structured approach as regards giving support to families? Given the way it is dealt with, some cases are dragging on for quite a period of time. I asked another question. What is the timescale from the time a solicitor’s letter issues to the time of coming to a settlement?

Mr. Ciarán Breen

In cerebral palsy cases, when we took it over originally, the period of time was roughly six years and we have brought that down to probably just less than two years, where we can. Clearly, we are dependent on lots of things happening in that period, such as getting reports from experts, which can take time, and there is the legal process itself. That is the kind of timescale we have narrowed it to. If we had the pre-action protocol, that could be narrowed, we think, to the equivalent period in the UK, which is about 12 months or 11 months.

Chairman

Thank you. I will let Deputy Colm Burke back in later. If members want to come in for a second round of questions, they should raise their hand signal or indicate in the room, given some people are in the room and some are online.

I have a couple of questions for Mr. O'Kelly. With regard to corporation tax, we are all aware of what is happening this week, in fact today, in regard to corporation tax. He has expressed concern at the reliance of the State and Revenue on corporation tax and I think has suggested in the past that it was not a sustainable platform for the State. If we are too reliant on corporation tax, how will the OECD floor of 15% impact us?

Mr. Conor O'Kelly

First, I do not really have an opinion on that and I do not think I have expressed one in the past. What we have tried to do is tell the committee and policymakers what we are hearing from investors. What really matters is not what I think but what our investors, who are lending us the money, think the risks are to Ireland and how are they viewing those risks. On corporation tax and certainty around Ireland’s fundamental industrial model around attracting multinational corporations and having this dual engine economy, any threat to that or any change to that is understandably a concern and they are watching developments very closely. It has been the position for the last year. I do not know if Mr. O'Connor wants to comment as he has been on the road with investors – virtually, of course - for the last 12 months. It is their No. 1 concern at the current time.

Chairman

Does Mr. O’Kelly see it having major consequences in terms of our revenue intake? Obviously, it will be a higher rate. I am somebody who would argue for the 12.5% but for that to be collected, although that is another day’s work in regard to some of the large multinationals having opt-out clauses or arrangements where the full 12.5% was not being collected. If we are going to have a 15% floor under the OECD rules, I presume our European neighbours will want to see us collecting the 15%. What consequences does Mr. O'Kelly see that change having for revenue intake? I take on board that the NTMA are the people with the listening ear. They are talking to the people who will be impacted by this and who have a special interest in it. I think it will be accepted that the NTMA is in the know on this, more than many of us. What are the consequences of that change in terms of fluctuations and it being a greater amount or a lesser amount? Has the NTMA run figures on that and does it have a model on that?

Mr. Conor O'Kelly

It is too early to say. It is a very complex business. We have Pillar 1 and Pillar 2, and there is an awful lot we do not know yet about how this could turn out. We know the Department has put in a provision to indicate that it thinks that €2 billion per annum is the potential long-term impact. I think that is a reasonably prudent forecast to take but it is way too early to say. The devil is in the detail and there is so much negotiation and so much we do not know.

At the same time, Ireland is a great place to do business. We know multinationals are here not just for tax reasons. Take our recent interaction with Stripe, for example, which is making a huge commitment to Ireland in terms of jobs and its second headquarters, and tax has never come up in any of the conversations we would have with them about Ireland as a jurisdiction and as somewhere they want to do business and do more business. I would not overstate the overall impact of this if it goes along the kind of tramlines we are talking about now.

Chairman

So 2.5% extra will not terrify them. Is that what Mr. O'Kelly is saying? I thank him for that.

I want to move to the issue of NAMA. I know it is not particularly under the remit of the NTMA but, obviously, what has happened there is connected to a lot of its work. I thank the NTMA for the information and the map it sent to us in preparation for this meeting. While it has its own board, it is semi-detached, if we like, from the NTMA. We could try to explain this for a week but the map sets out clearly the NTMA's relationship with these three bodies, and the functions are listed underneath.

The par value of the impaired loans taken over by NAMA was €74 billion. It paid in the region of €32 billion for those loans, and that was the bailout with taxpayers’ money. We had NAMA here last week. It hopes to achieve around €36 billion of a return, so we will get the €32 billion back plus somewhere between €4 billion and €5 billion. If we take everything into account, including revenue, we are probably talking of a sum closer to €5 billion, so, at best, we will get somewhere close to €37 billion. However, that leaves us with just over €37 billion of a gap. That is the bit that sticks in the taxpayers’ craw and in the public’s craw in terms of the bailout. While NAMA explained this to us at length last week and it will gain from those assets and loans what was given to NAMA - the €32 billion - and that bit extra in terms of €4.5 billion to €5 billion, there is still a €37 billion or €38 billion shortfall.

My question is this. I would be of the opinion, from listening to economists and various other commentators over the last period, that a lot of that was sold too quickly, first, but also that it was sold in very large lots, which reduced the number of bidders. Obviously, the more bidders there are, the more competitive the process is. Is it Mr. O'Kelly's opinion, looking back now with hindsight, that had we been able to hold some of those portfolios for just a couple of years longer and subdivided them into smaller lots, we would have got a better outcome and would have been able to close some of that bailout and relieve the taxpayers of some of that liability they have been stuck with?

Mr. Conor O'Kelly

There are a couple of things. NAMA is not my remit, as the Chairman knows, and I have no accountability for that area. I know NAMA was in with the committee.

Chairman

The NTMA provides services to NAMA.

Mr. Conor O'Kelly

We do. We provide corporate services. In terms of the Chairman's wider question on the macro picture, I remember that, when we were speaking to investors six or seven years ago, the total loans that NAMA took on were considered a contingent liability of the State at that stage.

Many people were reluctant to lend us money while that liability was still unresolved. Many thought that NAMA would not recover anything like the amount it recovered. The context and the environment change. I recall a time when that was a big hangover for Ireland with regard to its ability to borrow on the bond markets. That is no longer the case, and that is a welcome development.

Chairman

I accept that but the point that I am making is whether, if we had we been able to sit on it for two or three years longer and subdivide it into smaller lots, we would have been able to achieve a better outcome and relieve the taxpayer and the public of some of that bailout burden that our children and grandchildren will be paying.

Mr. Conor O'Kelly

We are in the investment business in many parts of the house. Nothing changes the fact that all of your information is about the past and all of your decisions are about the future. Investing and making decisions for a future that is unknown and uncertain is a difficult business.

Chairman

I will turn briefly to public private partnerships, PPPs. The NTMA has a direct role in these, wearing the National Development Finance Agency, NDFA, hat. It does the procurement and hands it over when it is ready to go to the relevant Department or State agency. The NTMA has used it a lot and promoted it for different infrastructure. Britain, as I understand it, has moved away from PPPs since 2017. The Tory Government in England and Scotland has moved away from PPPs. Does Mr. O'Kelly think that we may have been too reliant on PPPs? I understand the logic that you get the motorway quickly, with the private sector putting in a certain amount of money. When the cost over the full term is considered, does Mr. O'Kelly think that we have been too quick to move towards them?

Mr. Conor O'Kelly

I do not. I take the opposite view. I do not think we do enough of them; not by a long shot. There are a number of times when PPPs are a channel that is more attractive than others. A major consideration is whether there is an interest in having things off-balance sheet due to worries about levels of debt? Another major consideration is whether interest rates are low in absolute terms. PPPs are essentially another way of locking in low interest rates for 25 years. I would have argued for a long time that if those conditions pertain, then that is a period when the channel should be opened and more should be done. When those circumstances are not in place, there is no worry about being off-balance sheet and you are happy with debt levels, or if interest rates go significantly higher in nominal terms, then I would pull back on PPPs.

Circumstances at the moment are so favourable that we want to do as much off-balance sheet as possible. Interest rates are low and are effectively being locked in. I find the current environment to be attractive for doing PPPs. I do not think the State does enough of them. I would like to see us doing more, especially for social housing. The NDFA has produced its first 1,500 social houses at attractive costs. On average, it was €250,000 to build each of the houses. It pays about 3% to investors to manage those PPPs and finance them for us over 25 years. They are high-quality houses which have been effectively and efficiently built. We should do much more of them.

Chairman

I put it to Mr. O'Kelly that some PPPs have not turned out so well. For example, the total cost to the State of the Convention Centre Dublin was reported to be €416 million. It was discovered later that the State could have built it for about half that amount. The company that the OPW partnered with, Spencer Dock Development Company, went into liquidation and had to be bailed out by NAMA. This entity here, the Oireachtas, had to rent back, or pay a charge - some people dispute the use of the word "rent" - of €25,000 a day for it afterwards. The Limerick tunnel is underused. Mr. O'Kelly knows that last year, especially during the strict six or seven-week lockdown due to Covid, traffic volumes went down dramatically. There was a clause relating to when traffic volumes dropped below a certain level on those roads. In the case of the Limerick tunnel, there could be a bill of hundreds of millions of euro. Part of the N7 and N8 route goes through Laois. It was constructed in the 2000s. The taxpayer ponied up approximately 80% of the money for that and has to pay a maintenance fee of €1 million to €2 million a year. I recall the figure clearly. The motorist, who is the taxpayer, has to pay a toll. After 25 years, when the road will need substantial repair, renovation and replacement of surfaces, repairs to foundations and so on, the taxpayer will then pay to get it back. The cost over 25 years is a significant liability to the State and taxpayer. Sometimes PPPs may be appropriate. I do not argue that. I am saying that a number which have not turned out to be good news for the taxpayer.

Mr. Conor O'Kelly

The NTMA is not involved in any of the transport PPPs. Those are handled by the National Transport Authority. We just deal with accommodation PPPs. I will give an example in that regard. The Grangegorman campus of Technological University Dublin was the largest PPP taken on in the history of the State. It was taken to the Supreme Court for two years and challenged by one of the underbidders. It was hit by the pandemic. This month, 10,000 students will arrive on campus to fine infrastructure that has been delivered almost exactly on budget since the financial close five years ago, despite all of the cycles and what has happened, with just some small adjustments for inflation. Compared with infrastructure that the State procures directly, it stands up extremely well. Building infrastructure is tough. We have many plans to build infrastructure. Building it directly is difficult and finding ways to do it in general is difficulty. PPP contracts, when managed properly, can be good mechanisms to keep costs in check for the taxpayer.

Deputy Jennifer Carroll MacNeill

The Chairman asked the question I intended to ask about corporation tax. Ireland and the NTMA have been successful in continuing to access the international markets. What is Mr. O'Kelly's perspective on that continuing? What risks might make it more difficult?

Mr. Conor O'Kelly

I joked that I have a picture of Mario Draghi on the wall of my office. That is true. I have one. The ECB did whatever it took, including the introduction of interest rates, in this environment. The actions that have been taken in the last years, including bond buying and the Commission's support to next generation EU loans and grants, and that commitment and environment, allow us to do what we are doing, including borrowing and lengthening the maturity. Any change to that is probably the biggest risk that we have to look for. Ultimately, we will have to reduce those bond-buying programmes. The ECB will change its stance and tack. Higher inflationary pressures would make it change faster than its current predicted path. That is something to keep an eye on since it is probably the biggest risk or change. Even if that happens, we are already locked in and protected until 2025 or 2026. Even if the stance of the ECB changes, Ireland will not face a refinancing risk or see the consequences until the latter half of this decade.

Deputy Jennifer Carroll MacNeill

The opening statement the NTMA provided stated, "When the crisis hit, we had fiscal room when we needed it most and, in the years ahead we need to create that room again." Presumably, Mr. O'Kelly is inferring that we should create similar circumstances at that point.

Mr. Conor O'Kelly

I think we have to. I think we have to get back to budget balance and budget surplus. That is the key for credibility in the markets. Ireland is a small country, a very open economy. We are going to get buffeted around by international events. We know that is going to happen to us so I think it is very important for us to get back on track, particularly around that current budget.

Deputy Jennifer Carroll MacNeill

I thank Mr. O'Kelly.

I wish to ask Mr. Breen about the hospital accountability issues. During the break, I discussed this with some of my colleagues. It is obviously an issue of exceptional public interest given the risk to the young citizens of our State. With the financial risk to the State and the ongoing liabilities, it is one of the biggest issues that we face. Going back to the nitty gritty of the relationship between the State Claims Agency and the hospitals, how the incidents are notified and the accountability of the hospitals to the State Claims Agency, I ask Mr. Breen to describe the dialogue with the hospitals. For example, if a risky incident has occurred, is the hospital board ever required by the State Claims Agency to present on the risk incidents that have occurred and the steps it took subsequently? I ask Mr. Breen to answer that question first and then we might go on.

Mr. Ciarán Breen

If we simply get a claim and we do not have an incident, there is an immediate engagement with the hospital to try to understand what-----

Deputy Jennifer Carroll MacNeill

How often does that happen?

Mr. Ciarán Breen

Not very often, but it can happen. Sometimes it happens naturally because the injury was not discovered at the time of the incident. To move away from that for a second, incidents as they arise in the hospital are notified on the NIMS. Our clinical risk section will do a forensic examination of those and then the claims team will go back to the hospital to try to understand the things that happened in the context of a claim.

Deputy Jennifer Carroll MacNeill

Do they go back to the management or do they go back to the board?

Mr. Ciarán Breen

Mostly management of the hospital.

Deputy Jennifer Carroll MacNeill

Are the hospitals required to present the fact that that happened? That seems to be a serious thing to happen. Is the hospital management then held to account by the board? Does Mr. Breen have any oversight of that?

Mr. Ciarán Breen

I have no personal oversight, but I know that the boards, for example, of some of the hospitals have been directly involved. Yes.

Deputy Jennifer Carroll MacNeill

If, for example, there are multiple incidents in the same year in the same hospital, would that raise flags within the State Claims Agency systems?

Mr. Ciarán Breen

Yes, it would. If it was, for example, a single practitioner or something like that, that would raise a flag.

Deputy Jennifer Carroll MacNeill

Recurring incidents of a similar nature would raise flags.

Mr. Ciarán Breen

Absolutely. Yes, of course.

Deputy Jennifer Carroll MacNeill

Mr. Breen mentioned earlier that across maternity, there are 26 or 27 cases of cerebral palsy on average. Obviously, there are incidents that result in outcomes other than cerebral palsy. That is not the universe of experience in any sense. Is that not very serious? Those are 26 children and 26 families who are impacted with their lives entirely altered. I am not suggesting this is a role of the State Claims Agency, but at what point does the State determine that 26 is just far too many? In most cases these are caused by a failure to intervene in a timely way. I am not suggesting that any number is an acceptable number of cases. I am concerned that we have insufficient accountability from hospitals with the current scheme. We have an inability to oversee it in a way that says we understand that there are situations where incidents will occur and there was nothing we could do about them but there are far too many incidents where we have had to admit liability and apologise where a timely intervention might have avoided it and its lifelong consequences. Is it time now to review the clinical indemnity scheme?

I might come back to this in private session. I think it is time the committee asked the Comptroller and Auditor General to review the clinical indemnity scheme. I know he did a report on it in 2012. It needs to look at the role of hospital accountability, risk incidents, reviews involving parents and the presentations to the State Claims Agency or others regarding risk incidents. We need to mandate the opportunity for external reviews into hospitals to be done as a condition of continued participation in the clinical indemnity scheme. We need to look at what protection we offer consultants, nurses and other people working in the hospitals who identify problems to parents and who are essentially quiet whistleblowers within the hospital system, rather than presenting any risk to them.

At the moment we have incident after incident. Dr. Peter Boylan did a report on it and we are hearing it from the State Claims Agency today. It impacts those families and those children for the rest of their lives. It is too serious and the State is paying for it. We see the level of exposure and the level of personal hurt. I would like to discuss it in private session and I hope I will get the support of my colleagues in seeking a timely review by the Comptroller and Auditor General.

Mr. Ciarán Breen

I would like to make one response to the Deputy's remarks, purely to inform the debate. The cerebral palsy rate in Ireland, which is 1.5 to 2 per 1,000 live births, is very much in line with the standard across the First World in terms of obstetric care. The perinatal mortality rate, which is 3.5 per 1,000 live births, again reaches the level of not being out of step internationally. Our maternal mortality rate, which is 5.4, compares very favourably, for example, with that in the UK, which is 9.7. I absolutely accept that every case is a tragedy. We do not want any case to occur, of course. That would be the ideal situation, but just to inform the debate about where the relativities are, I thought it might be useful to offer those statistics. Finally, we do have open disclosure, as the Deputy knows, which is now on a statutory basis where hospitals are obliged to engage in open disclosure with families, following an adverse event.

Deputy Jennifer Carroll MacNeill

That is important, but it does not make any difference to the individual family for whom an intervention three or four hours earlier might have had a very different outcome for the rest of their lives. However, I appreciate the broader point Mr. Breen has made.

Chairman

We can examine that in private session. There would be a concern there. Obviously, the human cost is the big concern, but the fact that 92% of the claims relate to the area of health is of major concern.

Deputy Verona Murphy

My questions are for Mr. O'Kelly. What is the figure now for national debt per head of population?

Mr. Conor O'Kelly

Per head of population for Ireland, €43,000 is the debt per capita currently.

Deputy Verona Murphy

What is the population figure for that?

Mr. Conor O'Kelly

I think it is 5 million or something like that.

Deputy Verona Murphy

Therefore, that would be the most recent one.

Mr. Conor O'Kelly

Yes.

Deputy Verona Murphy

In May, when Mr. O'Kelly was asked about the debt burden for the taxpayer, he said "What burden?" Would he consider that to be a burden or does he stand over his comments?

Mr. Conor O'Kelly

I do stand over the comment because the interest bill has come down from €7.5 billion to €3.5 billion today over the last six years. The interest bill is really the burden that is being passed on. Because of the low interest rate environment, notwithstanding the larger amount of debt, the average interest rate on our total stock of debt today is 1.5%, the lowest that it has ever been. Our interest bill at €3.5 billion is twice what it was in the 1980s even though Government revenue is ten times what it was in the 1980s. I am just trying to talk about the burden.

The debt per capita is not my favourite statistic to look at because the most impressive countries in terms of debt per capita are Greece, Cyprus and Slovenia. Their other debt metrics are not ones that I would want Ireland to replicate. Debt per capita can be a bit of a false read. The Deputy would want to be looking at interest bill as a percentage of Government revenue, debt as a percentage of Government revenue and ratios like that to get a fuller picture.

Deputy Verona Murphy

Does Mr. O'Kelly envisage any risk in the very near future of an increase in interest rates when we go to refinance?

Mr. Conor O'Kelly

No, not in the near future because we have already locked in the rates. I can say with some confidence that the interest bill for Ireland will not go above €4 billion for the next three or four years irrespective of what happens in the interest rate market because that has already been locked in.

We have pre-financed, with one of the longest maturities in Europe. We will face refinancing risk later in the decade. Obviously, the higher our stock of debt, the more risk we take, but we are in a better position than the bigger numbers make it seem at first blush.

Deputy Verona Murphy

At what percentage rate did the NTMA lock in?

Mr. Conor O'Kelly

One can take the average rate over the past three years. In 2019, the average interest rate was just below 1%. In 2020, it was 0.4% and in 2021 it is below 0.2%. We are locking in very low interest rates currently and have done so in the past two or three years.

Deputy Verona Murphy

To go back slightly, Mr. O'Kelly is a member of the board of the Strategic Banking Corporation of Ireland.

Mr. Conor O'Kelly

That is correct.

Deputy Verona Murphy

He is on the board. Going back to my initial question, is he, as a board member, aware whether the EY report of the review of SBCI has been completed?

Mr. Conor O'Kelly

It has been completed.

Deputy Verona Murphy

It has been completed. Okay. I presume that on the basis that we have a separate remit with SBCI, Mr. O'Kelly does not wish to share that report with the committee.

Mr. Conor O'Kelly

No, but I will go back to SBCI and speak to the chief executive officer. I am sure we would be happy to share portions of the report if it is appropriate.

Deputy Verona Murphy

Or the report itself. That is fine. I thank Mr. O'Kelly.

Deputy Catherine Murphy

I have several questions, so I ask that our guests provide very quick responses. The best claim is one that can be avoided. I strongly endorse the comments of Deputy Carroll MacNeill in respect of addressing this issue in private session. We really need to get to a point at which damage can be limited. We have done that, for example, in respect of the State Claims Agency, in the context of which we have been through this kind of engagement where, for example, claims for slips and falls and those kinds of things in some sectors have been reduced. We have had good information on that. However, this is an area that we do not have the same level of transparency in terms of the mitigation of potential damage.

Who are the investment managers of the escrow fund and the Ireland Strategic Investment Fund?

Mr. Conor O'Kelly

The ISIF, direct and indirect, has hundreds of investment managers. The escrow fund has three investment managers - Goldman Sachs Asset Management, Amundi Asset Management and BlackRock Asset Management. The custodian is Bank of New York Mellon.

Deputy Catherine Murphy

Is there is a competitive tendering process where that kind of thing arises?

Mr. Conor O'Kelly

Absolutely.

Deputy Catherine Murphy

Okay. On the issue of Irish Water, there has been a change relating to the €240 million in commercial borrowings. There was a replacement of Irish Water's commercial borrowings. What are the terms of the cost of those borrowings?

Mr. Conor O'Kelly

Does Mr. O'Connor wish to address that question?

Mr. Frank O'Connor

Yes. Ms O'Halloran may wish to come in on it as well. In the background, the arrangement was that we could provide a working capital facility to Irish Water in the amount of approximately €350 million, depending on its needs, and that would then be repaid before year end and could ebb and flow as needed. We have been directed by the Minister to do that. The terms of the agreement are being signed at the moment. Irish Water has indicated it will not need to draw on the facility this year but all the paperwork and administration are in the background. A bit like Mr. O'Kelly's earlier comments in respect of ISIF, the terms will have to be commercial. We did comparisons in respect of where utilities in Europe borrow and the spread over a reference rate such as EURIBOR.

Deputy Catherine Murphy

Irish Water has the potential to borrow more than it is currently borrowing. Is that correct?

Mr. Frank O'Connor

We can revert to confirm the number in that regard. It was designed to be a €350 million facility. We are not able to predict exactly the needs of Irish Water at a particular point in time. As the Deputy stated, the current commercial facilities might be approximately €240 million.

Deputy Catherine Murphy

There is no impediment to Irish Water taking on projects. There is sufficient funding available.

Mr. Frank O'Connor

For the moment, the guidance we have received is that it does not need to draw on the facility. It is a working capital facility. I do not wish to confuse that with capital that may be given directly from the Exchequer. This is a working capital facility.

Deputy Catherine Murphy

As regards the New Economic and Recovery Authority, NewERA projects, I ask the witnesses to provide more detail on the special dividends, the sources of the dividends and the reason for the reduction. There was a reduction last year, which may have been due to Covid. I ask them to expand on that.

Mr. Conor O'Kelly

Many commercial State bodies were affected, particularly in the transport sector, so there was a reduction in dividends compared with previous years. That is due to the pandemic.

Deputy Catherine Murphy

What about the special dividends?

Mr. Conor O'Kelly

I will have to come back to the Deputy on that. I am not certain what she is referring to.

Deputy Catherine Murphy

Are the special dividends divided up in terms of the different entities that were involved?

Mr. Conor O'Kelly

Yes. The dividend policy and expectations are similar across all of the commercial semi-State bodies. We try to keep the same criteria in terms of the percentage of profits that are returned to the Exchequer. They are all looked at quite similarly. I am not sure there are many special dividend situations, but they do occur from time to time. I will check that and give the Deputy details of any such special dividends.

Deputy Catherine Murphy

That is grand. I thank Mr. O'Kelly.

Deputy Colm Burke

To go back to the issue raised earlier of public private partnerships, reference was made to roads. I understand a proposal is to come before Cabinet today in respect of elective hospitals. The proposal is that it would be day facilities only, which is a very short-term solution, not a long-term solution. I can only speak about this issue in the context of County Cork. In the context of PPPs, I have met developers who have said they would be prepared to design, build and lease back a hospital as required by the HSE. Do the witnesses believe such proposals should be given consideration in light of the fact that it would resolve several issues relating to healthcare as it would involve upgrading and putting in place the standard of hospital that is now required whereas, for instance, in the case of one of the hospitals with which I am working the original building was constructed in 1751 and the cost to refurbish it would far exceed the cost of building a new elective hospital? In the context of public private partnerships, should that issue be considered?

Mr. Conor O'Kelly

It possibly should. I do not know anything about that. I would need to see the details of it to be happy to give a view on it. In general, PPPs are attractive if they are of scale but not as attractive if they are very complex, so hospitals may not be suitable for PPPs. More suitable are accommodations such as schools, universities, housing and other projects that are relatively straightforward.

Deputy Colm Burke

The organisation in question has delivered this in other jurisdictions. I presume the State would become full owner of the facility in 25 years. The State would pay back over 25 years. For example, Cork City Council took this route in respect of a substantial extension to City Hall in Cork back in 2003 or 2004 when I was Lord Mayor of Cork. There was a full tendering process and contractors were appointed. They provided the finance, did the building and delivered and now we have something that will last for another 100 years. Likewise with hospitals, we want to improve the infrastructure in the healthcare sector and this might be a fast way of dealing with it.

Mr. Conor O'Kelly

It sounds like it has a lot of advantages. I would be happy to engage further on it after the meeting.

Deputy Colm Burke

I thank Mr. O'Kelly.

Deputy Cormac Devlin

I thank the Chairman for allowing us to come back in again. I will follow up on my earlier question on the need for further information about the breakdown of claims. Mr. Breen is going to supply that to the committee. That relates to 92% for Tusla and the Department of Health, and 6% for the Departments of Justice, Defence and Education.

I will ask about the post office savings bank fund. I note two contracts exist, one for An Post and one for Fexco. What is the administrative cost of these contracts? I do not know if Mr. O'Kelly will give that figure if it is commercially sensitive, but I would appreciate it if he could.

Mr. Conor O'Kelly

I will ask Mr. O'Connor to take that question.

Mr. Frank O'Connor

I ask Mr. Black to correct me if I am wrong. The fee for the post office savings bank fund, which has just over €4 billion invested, was €28.6 million last year. That was in the post office savings bank accounts in our annual report. If one goes to prize bonds and fixed rate products, which are in another section of our annual report - I will quote from memory and Mr. Black will correct me - there is approximately €13 million in prize bond fees. The other fees come to approximately €21 million for fixed rate products.

To give the Deputy context, there is approximately €24 billion across the entirety of State savings products, which includes just more than €4 billion in the post office savings bank, just more than €4 billion in prize bonds and approximately €15 billion in the fixed rate products.

Deputy Cormac Devlin

I thank Mr. O'Connor for that. On the post office deposit account for savings, I note that in 2011 it was €2.5 billion and it has risen to approximately €3.4 billion or €3.5 billion. Given the past year and a half we have had, does Mr. O'Connor expect that to rise higher than normal? What is his perception of the year ahead?

Mr. Frank O'Connor

No problem. The Deputy is correct. It was €2.5 billion in 2011 and €3.9 billion at the end of 2020 for the account he mentioned. As of the end of August or September, it is approximately €4.3 billion, which is continued growth. We have seen growth, just like the whole savings market right across the banking sector. We have been no different. We have not been an outlier and our share of the market has stayed pretty constant. In fact, looking ahead, despite the reopening of the economy, and one would expect some of those savings to convert into spending, we still see a little flow continuing. For our own assumptions next year, we will have some small growth but, naturally, while recognising the economy is reopening and one might have a flow back out. Currently, it is €4.3 billion and I would expect it to marginally rise next year.

Deputy Cormac Devlin

In terms of the post office savings bank fund and the investments therein, 61% of it was loans to the Exchequer but 15% of it was investments. What kind of investments are they? What is the mainstay of those?

Mr. Frank O'Connor

The specific direct answer is Irish Government bonds. If I could strip it back and explain it, approximately €4 billion comes in from the post office savings bank fund. It is a diversified source of funding for the State that has been there for many years. That comes into our general liquidity pot. However, approximately 10% to 12.5% of that, going back to the 1990s, is used in what we call the secondary trading market of Irish Government bonds, to add a little liquidity to investment for a return. Adding liquidity to the market also gives us price discovery. We are approximately 2% of the turnover and it is has been a very useful source.

If the Deputy remembers, in the past, one took that short-term money from the post office savings bank and invested part of it in longer-term bonds at the old interest rates of 4% and 5%, so it generated quite a high return. However, in this rate environment, and the Deputy probably read this in the Comptroller and Auditor General's report, the income from that did not outstrip the fees for what we pay to customers and in post office fees.

Deputy Cormac Devlin

Okay. That is very clear. I thank Mr. O'Connor for that.

Chairman

I ask Mr. O'Kelly to revert to PPPs for a moment. I outlined the situation with the convention centre. As I understand it, the total cost to the State for it was €416 million. That was just the State's contribution. There was a partnership with the Spencer Dock Development Company. The total cost to the State hit €416 million, but the assessment afterwards was that it could have been built at a total cost of €200 million. I mentioned the Limerick tunnel, the bill for which could run into hundreds of millions of euro as it was underused during the Covid period. It will be similar for other motorways. Another PPP that has been of interest over the past couple of years is the schools bundle. Mr. O'Kelly said that the NTMA does not have a direct role in transport, but I am highlighting PPPs in general. While there is a case to be argued for them, I am trying to highlight they also have major risks.

The PPPs for schools ran to 13% more than if they were constructed using direct billing. We also finished up in a situation where private companies are not supervised on site. The committee dealt with this last year. There was a more than €40 million cost for retrofitting those buildings. As I understand it, the taxpayer took those hits. That is substantial. The broadband plan, which is not a PPP in name, and I followed this closely in the previous Dáil because I had a responsibility as Opposition spokesperson on it, was done under what is called a gap model, but it is PPP. We are giving between €2.7 billion and €2.8 billion to a private company, an American entity, to do the broadband plan. Everyone's understanding was that the private entity would come up with 50%, or 30% to 40%, of the cost. It turns out the private entity is coming up with a figure, in comparison with the cost to the State and taxpayer, of approximately 10% to 11% of the cost, which is somewhere in the region of €270 million to €280 million.

The taxpayer is taking all the risk with all those projects. Irish Water has taken over liability on design build operate, DBO, projects from local authorities that are in the region of €1.4 billion and there is an annual cost of servicing. That is just a snapshot of some of them. The point I am making is that while a public private partnership may not always be 50%, when the final figure for the national broadband plan came out it was just jaw-dropping. I followed that very closely, as did others on this committee, in the various roles we had in the Thirty-second Dáil. We will finish up in a situation at the end of that project, where we will have broadband in rural areas that were not being serviced, not to mention all the other unusual aspects of it, but the cost will be enormous. Does Mr. O'Kelly agree that the taxpayers' liability is enormous?

Mr. Conor O'Kelly

I cannot comment on PPPs I am not involved in. We are involved in schools bundles so I will take that one for a moment. Schools bundle 5 is a very interesting situation in that, as the Chairman will recall, Carillion in the UK went bust and a local contractor in Ireland, Sammon, went into liquidation. One of the big issues with PPPs is, often, when something like that happens, whether the State will end up picking up the tab and the risk will transfer and stay with the private sector. In schools bundle 5, which the National Development Finance Agency, NDFA, had full oversight of, all those schools were built and completed at no extra cost to the taxpayer. The contract was intact. Other directly provisioned schools Sammon was involved in when it went into liquidation ended up costing the State very significant amounts of money. It is a great comparison to look at schools bundle 5 following the collapse of Carillion and Sammon, what happened to those schools being built and who paid for them. I think the Chairman will find that the PPP contract for schools bundle 5 stood up very strongly.

I know that sometimes, maybe, it does not. It is all about that contract, what is in it and how robust it is. We learn all the time and contracts get better and better, but the schools bundles is a very interesting example of where the PPP contract stood up and the taxpayer was not out of pocket.

Chairman

In most cases, the taxpayer is taking the risk.

The broadband scheme was not called a public private partnership but it is one. I would argue that it is a very bad one in light of the financial aspects and taxpayers' liability. Would the NTMA agree that, in light of what the taxpayer has ponied up and what is being put forward by the private entity in terms of the overall cost, the risk to the taxpayer is enormous given that there are not even penalty clauses for not meeting targets built into the contract despite the assurances we were given by Ministers on the floor of the Dáil that such clauses would be included? Does the NTMA agree that the broadband scheme poses a great risk to the taxpayer? It is not just a risk; the taxpayer is shouldering a massive burden as well.

Mr. Conor O'Kelly

I cannot really comment. I do not have the domain knowledge or accountability for it. I really do not have any comment on that.

Chairman

This model is known as a gap model but many of us did not know the gap would be so great. The contribution from the private entity is to be between €250 million and €290 million, while the taxpayer is to put up €2.7 billion to €2.8 billion. This is a PPP although it has a different name, the gap model. I do not know where that name came from. It is exposing the taxpayer and the State to an enormous risk. Let us forget that we are talking about the broadband scheme and say we are talking about some other scheme, perhaps a scheme for housing. That risk is very high.

Mr. Conor O'Kelly

Again, I just do not have any domain knowledge regarding this issue. I really do not feel qualified to comment.

Chairman

I will revert to the issue of the escrow account for a moment. The NTMA has outlined what has happened there very clearly, including in the documentation it has supplied. The value of the account has dropped by approximately €36 million. From the public's point of view and from the point of view of members of the committee, as laypeople, that is a concern. While, in the greater scheme of things, the sum of money involved is enormous, this is still a hit of €36 million for the State. The NTMA manages this. Perhaps the witnesses will clarify this for me. If this money was put on deposit in an account and not managed, there would be no loss and we would not have taken that €36 million of a hit.

Mr. Conor O'Kelly

I have been in the bond markets for 30 years and, even for professionals, it is hard to get one's head around negative interest rates. If we had the money in cash and deposited it with the Central Bank rather than managing it, as the Central Bank interest rate is -0.5%, we would be losing €70 million a year rather than €36 million. The fact of the matter is that central banks around the world are operating in a negative interest rate environment in order to stimulate the economy. We have seen that Ireland, as a highly indebted country, is a massive beneficiary of negative interest rates and the low interest rate environment but the other side of the same coin is that savers and investors have to pay the price.

Chairman

I accept that. Could I just clarify-----

Mr. Conor O'Kelly

That is a fact. We do not really have any choice but to live with that. We could take more risks. The only way to get higher returns in today's environment would be to take more risks with that money. However, we would not recommend that because it is probably only going to be there for a very short period of time. We would have to take a bit of a gamble on where stock markets will be at the time we need to liquidate. There is very little appetite to take risks with those funds.

Chairman

I will ask Mr. O'Kelly to confirm his clarification so that we can be absolutely clear. I expected that would be the explanation. It is fair enough. I just wanted to clarify it for the public. The public will see this depreciation in the value of these funds. To be absolutely clear, Mr. O'Kelly is saying that there is no avenue whereby that €14.02 billion could have been protected so that it would not lose anything and would remain at a standstill. To be totally clear, is that what Mr. O'Kelly is saying?

Mr. Conor O'Kelly

That is correct.

Chairman

I will ask a very brief question on the debt. It is high. I understand it stands at €241 billion or €242 billion at the moment. In answer to an earlier question, if I picked this up correctly, it was said that the average interest rate on that debt is approximately 1.5%.

Mr. Conor O'Kelly

That is correct.

Chairman

We know that borrowing is very low at the moment. The NTMA has provided the figures. That is welcome. I know the NTMA has been refinancing a lot of that debt. Is it possible to refinance further big chunks in order to further reduce the amount of interest accruing every year? Is that possible in the coming years?

Mr. Conor O'Kelly

That is a great question. Over the next three or four years, we will still have debt maturing that was issued ten years or so ago. There are still some high coupons on that debt with rates of 3%, 4% or even 5% in some cases. When we get into the latter part of the decade, the bonds we have issued over the last six or seven years will be maturing. These will, of course, have very low coupons. We have been able to lower the bill over the last period by retiring high-coupon debt at 5% and issuing at close to 0%. That will become harder and harder to do. We will have coupons at rates of 1% maturing and the savings will obviously not be as great.

Chairman

That is welcome. Does Mr. O'Kelly have a ballpark figure for the annual interest bill on that debt at the moment?

Mr. Conor O'Kelly

At the end of this year, it will be €3.5 billion.

Chairman

How much are repayments relating to the bank bailout costing the Exchequer and the taxpayer each year? Does Mr. O'Kelly have the figures from 2019 and 2020 in his head? Does he know what the figure is likely to be this year? Does he have a figure for even one of the years?

Mr. Conor O'Kelly

I do not know whether it is possible to isolate that figure.

Chairman

I would love to see it isolated.

Mr. Conor O'Kelly

The Comptroller and Auditor General has done a lot of work on this. There is a chapter in his report in which he rolls over that calculation every year. It is very clear from that but I do not have it to hand.

Chairman

I will ask the Comptroller and Auditor General to come in briefly on that because that sum of money is something that grates with people.

Mr. Seamus McCarthy

I repeated that exercise at two-yearly intervals. I am considering doing a further iteration of it. My recollection is that the figure was about €1 billion a year. Again, that related to the prevailing average interest rates at the time. Given the reduction in rates since then, it is likely that this figure has gone down. I may report on that in 2022.

Chairman

If there are 2 million households in the State, that can be divided to get the average cost per household to repay that debt. I thank the Comptroller and Auditor General. That clarifies the matter. We have covered a lot of ground. I believe we have reached the end of the questions. As the NTMA has a broad remit, its representatives have had to do a lot of preparation for this meeting. I thank the witnesses for joining us. I also thank their staff who were involved in the work of preparing for today's meeting. I thank the Comptroller and Auditor General and his staff for assisting us in preparing for the meeting. Is it agreed that we request the clerk to get any follow-up information and carry out any actions arising from today's meeting? Agreed.

I am informed that Mr. O'Kelly has been in his position for seven years, predating our term here. I acknowledge that and the work the NTMA does, because it is handling the big bucks. That has enormous implications. The interest members have shown today demonstrates that. I recognise that. I understand that Mr. O'Kelly is stepping down very soon. I wish him well.

Is it also agreed that we note and publish the opening statements and briefings from today's meeting? Agreed. I will suspend the meeting until 1.30 p.m. when the committee will resume in public session to consider correspondence and other business of the committee.

Mr. Conor O'Kelly

I thank the Chair and I appreciate the remarks.

The witnesses withdrew.

Sitting suspended at 12.29 p.m. and resumed at 1.36 p.m.