Too often we take for granted the work of our institutions that work very well. Since 1923 the Committee of Public Accounts have been an intrinsic and vital part of the machinery not only of this House, but also of the machinery of Government itself. I am afraid that too seldom has there been a recognition of the sustained hard work and professionalism that goes into the PAC scrutiny of State expenditure. Indeed, the present chairman and his committee have an excellent record and, despite the increasing complexity of many of the State's expenditure programmes, have managed to bring their assessment of the Appropriation Accounts right up to date. In this work they complement the acknowledged expertise and independence of the Comptroller and Auditor General and his staff.
There is a clear recognition of the position of the PAC within the Government service. Indeed, all Departments have given their full co-operation to the Comptroller and Auditor General and subsequent examination by the PAC at all times. The same is true of all Departments; I know that in four separate sessions on the Energy Appropriation Accounts for 1987, which are the basis of today's debate, the Secretary of the Department of Energy, as accounting officer, gave the fullest possible co-operation to the committee. There were particular circumstances, however, arising from the Tara Mines issue, which the PAC were pursuing, which prevented a full disclosure of original documentation. The committee, in their report, have stated that by virtue of the fact that they had not total access to all the original documentation they requested, they were precluded from coming to a final conclusion whether the State obtained full value for the eventual sale of the shareholding in Tara Mines and for the accrued and future royalties relating to the Navan ore body. While this is the essential element of the Committee's report, it cannot be seen totally in isolation and must be viewed against the background of the State's relationship with Tara Mines Limited.
While today's debate is ostensibly about a matter relating to the Department of Energy, I suspect that there are underlying issues here which might have, equally, arisen in the operation of any other Department. That is not to say, however, that the issues raised on the sale of the State shareholding in Tara Mines should not be addressed. I propose to deal with the issues raised and demonstrate that the approach adopted by the Department of Energy in the sale of the State's minority shareholding in Tara was both correct and commercially astute. In short, the State got an excellent price for its equity interest and the taxpayer got full value for money.
The PAC's scrutiny of this item in the context of the 1987 Appropriation Accounts for the Department of Energy did not, of course, for one moment suggest that there was any improper conduct, or indeed, that the transaction was not handled correctly in all its aspects. One element I detected, at the time of the PAC assessment, and, indeed, borne out by the tenor of subsequent Dáil questions, was that certain critics were not really addressing the issue of the price obtained for the shareholding but were really hankering after a total rewrite of history. I think it would be helpful for the record just to recall what the salient facts of the Tara saga were.
In 1975 the then Minister for Industry and Commerce came to an agreement with the owners of Tara Mines Limited by which the State received a 25 per cent shareholding in the company in return for the granting of a State mining lease. One of the financial provisions of the lease required the company to pay an annual royalty of 4.5 per cent of profits calculated by the Revenue Commissioners based on corporation profits tax as it existed on 6 April 1974. This tax was later replaced by corporation tax under the Corporation Tax Act, 1976. Because of their familiarity with tax law, the Revenue Commissioners made the appropriate royalty calculations. The State lease provided for the settling of any disputes by arbitration.
The Revenue Commissioners and Tara never agreed the basis for defining profits on which royalty could then be calculated. The only solution to identify the exact method of calculating profits on which royalties could then be computed was to appoint an agreed arbitrator and that was done in 1987.
Much of the controversy which surrounds this issue was based on the fact that no royalties were ever paid on the operations at Navan, and despite substantial volumes of lead and zinc being exported, the royalties which were to be paid were based on a tax that had lapsed and the ground rules had not been clearly set.
There are volumes of academic books worldwide on the subject of royalties and natural resources. There is, however, broad consensus that a tax on profits is not only the most equitable way of capturing an element of possible windfall in mining operation, but is also the one which best facilitates economic development. While royalties based on volume or value, for example tonnage or sales, have the merit of simplicity, they are also in themselves a cost burden on any operation. Straight volume or value royalties tend to block the development of mines where estimated rates of return or projected profits are marginal and also have the demonstrated effect of closing operations which are finely balanced from a commercial viewpoint or even modest loss makers. However one views the arguments, the fact remains that the then Minister for Industry and Commerce came to an agreement in which royalties were based on profits and that could not be changed either unilaterally or by any form of wishful thinking.
The focus on the appropriate royalty structure had drawn attention from a fundamental flaw in the 1975 agreement. The initial agreement did not protect the State in that it gave the majority shareholders an effective veto over the State's sale of shares. The articles of association of the company set out the mechanism to be used should the State as shareholder propose to sell all or a portion of its shareholding in the company. The mechanism was dangerously restrictive to the State's interest.
The mechanism may be summarised as follows: the State was obliged to give notice to the company that it intended to sell all or a portion of its shareholding. Once such notice was given, it could only be revoked with the agreement of the majority shareholder; the State had to first offer its shareholding to Tara Exploration and Development as majority shareholder which would have an option to purchase for three months following the offer; if Tara Exploration and Development did not look to acquire the State's shareholding and if the company did not find a purchaser within four months of the State giving notice, the State then, in theory, had the option of selling its shareholding to any person at any price. However, the directors of the company had absolute and uncontrolled discretion as to whether they would admit such a purchaser to membership of the company; and in the case of a dispute between the State as seller and the company as purchaser, either party might apply to the company auditor to fix fair value to the shares and the State would have been bound to accept such a price.
This selling mechanism once initiated by the State, was irreversible unless the company allowed otherwise. Furthermore the State had no prior guarantee that this "fair value" price would reflect the true worth of its shareholding. Indeed, using the "fair value" mechanism was fraught with potential danger to the State, for the following reasons.
If the company auditor was called on to fix a fair value for the State's shareholding, he would be deemed in so doing to be acting as an expert and not as an arbitrator under the articles of association. This distinction has important legal implications. In valuing a shareholding, an arbitrator is bound to take submissions from both parties and to set out the basis of his valuation. If either party disputes his valuation, they can appeal on a point of law. On the other hand, an expert valuing a shareholding is not bound to receive submissions and can issue a valuation without setting out the basis on which it was derived. There is no appeal against the judgment of an expert unless he discloses the basis of his valuation, or unless the figure arrived at is impossibly high or low.
In summary, the selling mechanism set out in the articles of association was weighted heavily in favour of the company. The effective manacling of the State's position was to greatly influence the way the Department of Energy set about selling the shareholding.
It must be said, however, in fairness to the participants in the 1975 agreement, that however disadvantageous some of the deal's elements were, it did result in the State getting a 25 per cent equity stake without cash payment. Indeed, we would not be debating this issue today if that agreement had not been put in place. It must be said also that a balance had to be struck between the rights of the private sector developers and the State's interest in facilitating the development of the mine. Achieving such a balance is seldom straightforward.
The State's position was further weakened in 1982. The net effect of new arrangements meant the further dilution of the State's interest. In 1982 the State went along with the issue of £1.25 million worth of preference shares. The State did not participate in this issue. These new preference shares were entitled to receive an 11 per cent yield, and 10 per cent of all dividends and reserves. This agreement had two effects: for £1.25 million invested in the company, the State agreed to extend the mine lease by ten years. Based on current extraction rates, this is equivalent to 25 million tonnes of ore. While there was provision for extending the lease up and up to £20 million was to have been invested, in the event only £1.25 million was provided for substantial concessions.
In addition to conceding on the ore, the Minister agreed to an effective dilution of the value of his shareholding by 10 per cent. While a further £6.75 million was to have been invested, this was waived by the then Minister in 1984. As the Minister held 25 per cent of the shares in Tara, he gave up 10 per cent of his value in return for an investment of £312,500, i.e. 25 per cent of £1.25 million. Based on this valuation, the Minister would have valued the residual State shareholding at £2,812,500. Clearly, in the approach in 1989 to the disposal of the State's minority shareholding in Tara, we did not use the logic of the 1982 agreement as a benchmark to assess value.
There was, however, a very real yardstick which the Department of Energy could use. In 1986 the majority shareholders sold out. These shareholders had created a company, Tara Exploration and Development, which was the holding company for the original 75 per cent majority stake. That shareholding had been enhanced further by the preference share agreement of 1982.
The State controlled Finnish mining company Outokumpu acquired 100 per cent of Tara Exploration and Development in February 1986 for Can. $19 a share or Can. $126 million in aggregate. The average US Dollar/Canadian dollar exchange rate during February 1986 was 0.712. The Outokumpu price for Tara Exploration and Development can be valued in February 1986 at US $90 millions.
The assets which Outokumpu purchased were (a) 75 per cent of the ordinary share capital of Tara Mines, (b) 100 per cent of the redeemable preference share capital of Tara Mines with a par value of Irish £1.25 million and the right to a fixed and variable dividend, (c) Can $15.3 million worth of promissory notes due to Tara Exploration and Development from Tara Mines, of which Can $9.8 million were repaid to the company during 1986, (d) certain exploration licences and exploration activities in Ireland unconnected with the Navan ore body and (e) an investment in Northgate Exploration consisting of 501,714 common shares with a quoted market value of US $1.6 million.
The Outokumpu price can be adjusted so that it refers only to 100 per cent of the ordinary share capital of Tara Mines. Allowing for this adjustment the full valuation of the ordinary share capital of Tara Mines would be US $103 million. This offer, of course, was made in February 1986 dollars. Adjusted to take account of changes to March 1989 when the State's shareholding was sold, the valuation was then $113 million current. A straight 25 per cent shareholding in Tara Mines based on the price Outokumpu paid for its majority shareholding adjusted correctly so that the comparison is fair and valid, would be US $28.25 million. Outokumpu paid the State $50 million for the State's minority shareholding together with past and future royalties. If we isolate the royalties question pound for pound, or indeed dollar for dollar, it can be demonstrated that the State received a very handsome price indeed for its minority shareholding. But, all things were not equal. The State's shareholding had been diluted to 22.5 per cent approximately by the preference share issue of 1982 thereby leaving the effective majority shareholding at 77.5 per cent. This is not where the story ends. Outokumpu were acquiring an unencumbered majority shareholding with full control while the State's shareholding was impotent, locked in, therefore highly illiquid with total control left effectively in the hands of the majority shareholder arising out of the fatal flaw in the original 1975 agreement.
The royalty issue is a vexing question which arose out of the obscure and incomplete agreement of 1975. As I said at the outset, no amount of wishful thinking can set the clock back. The inherited position was one where royalties would be 4.5 per cent of operating profits based on the computations of the pre-1986 corporation profits tax regime. Paradoxically, the difficulties did not arise because of the decision to change the basis of the corporation tax in 1976. The difficulties arose because a definition of profits was not agreed at the time. This led to the appointment of an arbitrator in 1987. Given the dispute on the computation of profits it was incumbent on both sides to maximise their claims. The logical position for the Revenue Commissioners was to assume that no allowances or netting off would be allowed and to base their claim on the maximum perceivable receipts for the State. Clearly, the company owed it to their shareholders to minimise their tax exposure. Before getting into even the basis of the dispute, I think common sense should ask us to look at how exactly the Tara Mine performed. Neither ordinary dividend nor royalty was ever paid because distributable profits did not arise until 1989 and the calculation of profits for royalty purposes was in dispute right up to the time of sale negotiations. The underlying reality was, whatever the positioning on both sides of the arguments on reckonable profits, that the original controlling shareholders sold out in 1986 without getting a penny dividend. The majority shareholders comprised some of the most respected and experienced of the world's major mining companies. Chartered Consolidated, Cominco, Noranda and Northgate, are regarded as first rank and canny operators in the mining sector. They were the developers of the original mine and they know the operation better than anyone. They volunteered to sell out without receiving even a nominal dividend.
If we take a closer look at the mine's profitability once again the issue is fairly straightforward. In its first ten years of operation starting in 1978, and despite both good and bad years in terms of commodity prices, the mine made profits in only three years and losses in the other seven. In aggregate the accumulated losses far exceeded the aggregate profits in that period. The cynics may well say that the majority operators were shaping their accounts in such a way as to somehow shelter hidden profits. This premise just does not stand up when it is seen that the majority shareholders sold out without getting any effective benefit for any such positioning. Any credence somehow that this assertion might have disappears when the reality of how vulnerable and precarious the company were for a number of years is brought to light. In fact the 1982 rearrangement of capital was at a stage when the very existence of the company was threatened and when there were genuine risks that the company would go into receivership. There had been a number of debt reschedulings and some of the company's lending banks had indicated that they could go no further. Surely, this is not the identikit of the alleged treasure trove as painted by some of the Tara critics. Perhaps it is understandable to think in these terms when a significant output and value added in the company is taken into account. Clearly, Tara have been very successful in terms of employment in the Navan area and as a significant net contributor to the balance of payments. Once again it is easy to equate high sales figures and profitability though on examination these will be seen not to bear any close correlation with one another.
The royalty issue deserves further scrutiny however. It is transparently clear, given the availability of capital allowances, that the company had no royalty liability up to the end of 1982. When the company's draft 1983 accounts became available in mid-1984, there was sufficient improvement in the company's trading position to indicate that at least a theoretical basis for seeking royalties could arise. It became clear in 1985 following legal advice obtained by the Department of Energy on the methodology in calculating the profits of the company for royalty purposes, and from contacts with the company, that strong disagreement existed between the State and the company on important questions which were relevant to royalty liability. One notable area of contention was exchange losses: the question of currency exchange losses on borrowings in the Tara context arose through funds raised by Tara on the foreign currency markets to bring the Navan mine into development. The company's view had always been that exchange gains and losses on this debt are financing costs in the same way as normal interest payments on loans. While the revenue accepted that the interest on bank borrowings is fully allowed there were certain different interpretations as to the possible treatment of exchange gains and losses. Given the possible uncertainty of this issue revenue disallowed all offset based on this issue in the profits computations prepared for the Department of Energy for the purposes of royalty calculations. Another issue which contributed to the difficulty was disagreement on the timing of capital allowances. It was quite apparent that these arguments could only be resolved by recourse to arbitration. In February 1987 counsel for the Department of Energy advised that a computation of the company's profits for royalty purposes should be prepared by the Revenue Commissioners for the years 1978 to 1984, so that a royalty demand based on these years issued to the company. The main reason for this move was to formally establish that a dispute existed which required to be resolved through arbitration. Revenue computation put this procedure into play. The Revenue Commissioners made a demand for £4.789 million based on a figure of £107 million profits for the first seven years of operation of the company.
Despite extensive explanation in this House and elsewhere this figure has been bandied around as if it were an ex cathedra declaration of the actual position. I cannot stress too much that this was a perfectly legitimate and acceptable opening gambit by the Revenue Commissioners to get the arbitration process under way. Revenue prepared the computation on the basis that the State's approach on every item of disagreement would prevail. This demand was, quite naturally, rejected by the company.
The demand of £4.789 million was seen as representing the best possible scenario for the State; the Revenue Commissioners made it clear at the time that having regard to the nature and extent of the disagreement with the company that there was a strong possibility that no royalties would be recovered for the first seven years of operation. However, the arbitration process would settle the basis for computation of royalty for subsequent years. Following protracted correspondence with Tara agreement was reached on the appointment of an arbitrator in September 1987.
As an aside here I know that the PAC expressed certain disquiet that it should take so long to get the arbitration process under way. That is a view with which one could readily identify. However, I know that the accounting officer explained to the committee that there was a certain difficulty in assembling a legal team with a track record in problems related to mining and taxation. It was very important for the State that they be represented in the best possible way. In any event, the delay in itself did not in any way undermine the State's entitlements. Consultations with the office of the Attorney General with a view to engagement by the State of counsel with special expertise in the various aspects which would be put before the arbitrator had already commenced before the formal royalty demand was made. These consultations were still in process in mid-1988 when arrangements were put in hand to sell the State's shareholding in Tara Mines Limited. Early in these negotiations it became clear that an opportunity existed to settle the royalty issue for once and for all on terms attractive to the Minister for Energy. At this stage the Revenue Commissioners were asked to prepare further and more realistic royalty computations. They confirmed their original private view expressed in March 1987 that there was a strong possibility that no royalty would be payable for the first seven years of operation. They estimated that on a cumulative corporation profit tax basis the range of royalty payments that might be due right up to date, that is for the first 11 years of operation, from 1977 up to 1 January 1989 inclusive, could be in the range of £1.5 million to £2.3 million. Even at that the top of this range was regarded as being optimistic. A more realistic figure could be at the bottom of the range at £1.5 million. I hope the recall of these figures will help defuse some of the heat generated over the value of royalties. Indeed, together with the advisers on the sale the assessment by the Department of the full value of the royalties, both past and present, came out at about $11 million.
In summary the price received for the sale of the shareholding was excellent. Despite the inherited weakness of the original agreement and the further dilution of the State's rights in the 1982 capital rearrangement we managed to get a price which beat the benchmark set by the original majority shareholders and all reasonable expectations we could have hoped for based on conventional approaches to valuation, notably those of net present value.
Such a good result does not come about by chance. When negotiating with a company of the stature of Outokumpu considerable care would have to be exercised in ensuring the best possible return for the State. Indeed, Outokumpu, while now experiencing some temporary difficulties, have been a strikingly successful company with growing interests worldwide. They have, in particular, received much favourable press commentary for their skilful purchases and acquisitions notably in the mining sector, but even Outokumpu when coming to negotiate did not consider they had sufficient in-house experience for this type of deal. Outokumpu employed first rank financial and mining advisers in London. The Department of Energy equally in their approach to the sale of the shareholding wished to ensure the very best possible return would be obtained for the State. It would, of course, be very easy to take the penny wise, pound foolish approach and conduct the exercise totally in-house. The Department of Energy's approach was more measured and far seeing; it was determined to take on board the best possible combination of consultants, international commodity experts and legal advisers so as to ensure that the State's negotiating position was as strong as it could possibly be.
The flaw inherited in the original 1975 agreement whereby the State was effectively locked in by the majority shareholders also had a spin-off effect in the Department's approach to the employment of consultants. It is normal practice in the Department of Energy to appoint consultants or financial advisers after a competitive process in which price, track record and specific expertise are all taken into account. If, however, the engagement of financial advisers had been, in this instance, put out to tender we would have been giving a clear signal to Outokumpu of our long-range intentions. This would have put the State, and ultimately the taxpayers, at a disadvantage. In the event, therefore, the financial advisers were selected on the basis of mainly qualitative criteria and notably a demonstrated ability to deliver imaginatively, particularly in less than orthodox circumstances. Following a broad review of requirements, National City Brokers were appointed to act as the Department's advisers.
I would remind the House that NCB are the largest independent corporate finance and stockbroking house in Ireland. As NCB are not associated with any bank, they had no potential conflict of interest because of lending relationships or other banking relationships with Tara or Outokumpu. The fee basis was totally standard for transactions of this sort. NCB charged based on value achieved. If NCB had not delivered such a substantial payment for the Minister for Energy, NCB would not have received the fees. The only other consultancy payment to NCB by the State is for advice in relation to the flotation of Irish Life. As the Minister for Finance has already informed the Dáil, the award was based, not only on expertise, but also on the fact that the NCB tender was the lowest. The Department of Energy believe very strongly in value-driven fees. The ad valorem fee type structure is widely used in business. It gives people an incentive to achieve the best deal for their clients. In this particular case, the State got 98.5 per cent of the benefit.
While the Department of Energy had been the prime movers in the process, the very successful outcome was in no small way attributable to the sustained work, professionalism and advice of NCB. People very often focus on the absolute size of a fee rather than on its relative size and its ultimate net cost to the State. The really relevant questions are, of course, was value obtained for the fee and did NCB contribute materially to the price, which was above estimates of reasonable expectations? The answer is a clear "Yes", and the Department of Energy were well served on this occasion by NCB. In practice, the net cost to the Exchequer was considerably less. First, of the total amount of £662,000 was a VAT payment of £132,000 which when included is a mere exercise in circularity as the VAT payment reverts automatically to the Exchequer. In addition, a withholding tax of £170,000 was also deducted from the payment, leaving a normal net cost to the Exchequer, by excluding the VAT and withholding tax elements, of £360,000.
In previous questions in the Dáil on this issue, the Minister for Energy has pointed out that the services rendered by NCB were way beyond those that would be involved in a normal brokerage transaction. Of course there was a brokerage element and if the whole exercise had been simply one of brokerage then the fees would have been much less. This transaction, however, was unique in that it required sustained input and advice on the approach, the valuation, international commodity prices and a large amount of legal work, together with intensive work at the negotiation stages. The NCB input into this whole process was considerable. From January 1988 NCB Corporate Finance Limited gave a full working commitment to the review of the Minister's rights and powers under the State/Tara shareholding agreement and mining lease and started detailed financial analysis of Tara's performance and future prospect. The main component of the work done by NCB in the first half of 1988, aside from the strategic advice on the emerging positioning by the Department relative to Outokumpu, was the preparation of a preliminary report of the State's objectives and expectations in the sale negotiations. This involved an exhaustive review of the company's operations, up to date research into zinc and lead metals and concentrate markets, currency exchange rate forecasts and operating costs and revenues estimates. The approach called for widespread and discreet discussions with Department officials and other sectoral interests in Ireland and overseas. This work culminated in the building of computer models to value the State's shareholding in Tara Mines.
The one key essential negotiation hurdle was to get the agreement of Outokumpu to set aside the binding selling mechanism as stipulated in the 1975 agreement and to allow the Department, and their advisers, access to Tara's detailed records. This access was, of course, covered by confidentiality clauses which I have already explained.
While it would be too timeconsuming to go into all the quantitative and modelling work done by the NCB Team, the approach is based on two principal valuation techniques to the ordinary share capital of Tara Mines, namely, discounted cash flow, DCF, and valuation based on the Outokumpu offer of 1986 to buy out the original majority shareholders.
The DCF method involved projection of Tara's future cashflow on the basis of carefully considered assumptions in relation to lead and zinc prices, currency exchange rates, other key production data based on ore reserves, operating costs and production schedules. When these cash flows are discounted back to current prices an indicative value of the State shareholding was obtained. The many variables and underlying assumptions for this calculation were subjected to a wide range of sensitivity analysis tests.
Similarly, the Outokumpu offer for Tara Exploration and Development in February 1986 was not taken at face value but was analysed in very great detail. Furthermore, adjustments were built in to take account of the depletion of the mine in the interim period and of changes in metal prices, exchange rates, mine operating costs and other elements, notably the market discount which would normally apply to the highly illiquid minority State shareholding as against the premium which attached to the majority readily saleable shareholding purchased by Outokumpu in 1986. The indicative figures derived from these exercises correspond broadly to the DCF figure calculated quite independently.
NCB also valued past and future royalties payable to the Minister.
Another key element to the NCB advice was to get the timing of the approach right. While negotiators for an operating mine such as Tara would automatically disregard the commodity prices ruling at the time of negotiation, in practice the psychological backdrop of high or low prices can often be a determining factor in a successful sale. Part of the NCB advice was to get the timing of the substantive negotiations right. This they did, one could argue, to perfection. The key indicator here is the price of zinc. Zinc is much the more important factor, as there is about five times as much zinc as lead and because zinc is considerably more valuable. The average world price of zinc in dollars per metric tonne has been for 1986, $758; for 1987, $799; for 1988, $1,247; for 1989, $1,659; for 1990, $1,515; and today, $1,056.
With the benefit of hindsight, it is clear the advice the Minister received from NCB was outstanding. Relative to today's prices zinc was over 50 per cent higher when the Department and NCB concluded the sale. The annual figures mask an even more favourable set of monthly figures. In fact, the NCB advice on timing meant the negotiations conducted in the early months of 1989, coincided with the highest price ever recorded for zinc in the last 15 years. The monthly average price for zinc as quoted on the London Metal Exchange for February 1989, was $2,006 a tonne; prices are now languishing at $1,050 a tonne.
NCB also exercised the same degree of expertise in relation to lead price and exchange rates. For example, the lead price at the time of the negotiations was over a third higher than the level it is today. If the Department and NCB had not moved at the most advantageous time from the State's perspective there is a real danger that the Minister would have achieved the values implied in the 1982 deal instead of over ten times that level.
Instead, Tara, as expected, performed very well in 1989 and 1990. This, as indicated, was due, primarily, to the very high metal price and relatively strong dollar in 1989. It was the expectation of these profits that enabled the State to get $50 million for its interests.
The royalty was payable out of pre-tax profits and the amount of the royalty deductable as a charge for tax purposes. Consequently, while the royalty level was 4.5 per cent the effective royalty would now have been 2.7 per cent. As a result, in 1989, the Minister would have received in the region of $2 million and in 1990 in the region of $1 million.
If the Minister had not sold his shares, he would have been entitled to dividends out of the after-tax profits if the majority shareholder decided to declare one. However, based on the historic experience of no dividend payments, the expectation of dividends would be low, even in a bumper year such as 1989. It should be noted that, in 1989, Outokumpu only paid 16 per cent of their earning out as dividends. As should be clear from these figures, the Minister received excellent value from his interest in Tara. He was only able to achieve this result by selling against the background of optimism on mineral prices and exchange rates which existed in 1989.
In the criticisms of the price obtained by the State for its shareholding certain spurious calculations have been made based on speculation on the Galmoy find by Conroy and indeed more recently that of Ivernia West. We have all been heartened by the Galmoy find and further encouraged by the recent potentially exciting discoveries of Ivernia. The Department of Energy and indeed the Geological Survey Office work closely with prospecting companies and facilitate them in every way possible. We all hope that both these finds will, in time, develop into very worthwhile commercial projects, bringing with them much needed employment and local value added.
Comparisons with Conroy are both potentially misleading and dangerous. Conroy has, of course, proven reserves of over 6 million tonnes, but in addition, Conroy has identified other mineralisation zones and has additional licences. The reserves in Conroy are of a higher quality than the ore at Tara. In addition, the value of Conroy has been enhanced by the discovery by Ivernia and at the market belief of a strong mineralised zone along the Rathdowney trend. Unlike Conroy, Tara has a very defined area without the same upside potential.
In essence the sale agreement for the Tara shareholding and the royalties focused on a single composite figure. The final agreed $50 million included both elements. The whole thrust of the negotiation revolved on settling on this single figure; the breakdown into the individual components were not seen as crucial. The Department of Energy, however, always had a clear view on how they valued the components, which in aggregate were reckoned to be worth approximately $40 million. The additional $10 million over and above the detailed calculations of value as calculated by NCB on behalf of the Department was gained by negotiation. As there were two Outokumpu companies involved in the purchase it was necessary for the figure to be split up. It was Tara Exploration and Development which is a 100 per cent company owned by Outokumpu, which acquired the Minister's shares in Tara Mines Limited while it was Tara Mines Limited who had to settle their royalty liabilities to the Minister. Accordingly, the aggregate figure was broken down in a ratio of 2 to 1 for the shareholding vis-á-vis the royalties.
I have taken a certain amount of time out to explain the whole history and circumstances of the sale of the State's shareholding. I have done so because given the inherited difficulties, the Department's approach was one which was both sensible and yielded good results. The PAC for their part have not stated that in fact the price obtained was not good. The problem, as seen by the committee, was that they did not have full access to all the papers which, in their view, would let them come to such a conclusion themselves. This is the kernel of the report by the Committee of Public Accounts.
Once again the Tara dossier contained circumstances which gave rise to particular problems. The agreement concluded by the then Minister for Industry and Commerce in 1975 with the company contained a strict confidentiality clause. In addition, the Minister at the same time in agreeing a State mining lease for Tara approved the inclusion of a covenant which undertook that all information and data supplied and all books and records made available by the company would be treated as confidential. The accounting officer, in these circumstances, could not make available to the committee the NCB report and related documentation which drew freely on data which was clearly covered by these former legal confidentiality stipulations. The accounting officer's position was supported by the legal advice of the Attorney General. Indeed, the Attorney General has advised that the Minister, and through him, the State, could be liable to damages for any loss or injuries sustained as a result of such a breach of the confidentiality clause in the original shareholder's agreement or the covenant in the State mining lease.
I note it is the committee's view that the agreement of the then Minister for Industry and Commerce to his undertakings in both in the shareholder's agreement in 1975 and the parallel State mining lease has precluded the proper discharge of the committee's duties as they see it under Standing Orders. The PAC should be facilitated in every way possible in their examination of departmental accounts. I know the Department's accounting officer shares this view and has stated so publicly to the committee. Nonetheless, the situation in which the accounting officer found himself was one which was quite clear cut; it was just not possible to facilitate the committee by giving them direct access to data which was held by these contractual obligations relating to confidentiality.
I also note that the committee are also of the opinion that no further agreement should be signed on behalf of the State which may impinge on procedures for public accountability. As a general aspiration, that is something most people could go along with, but there will always be situations where that may prove to be difficult or impossible. Indeed, the committee expressed their grave concern at the implication of the accounting officer's statement that even if there were not legal prohibition on the disclosure of information in this case he would still have difficulty in disclosing it, or indeed any commercially sensitive information held by the Department. While, as I have already stated, the committee should be facilitated in every way in their scrutiny, and indeed the Comptroller and Auditor General should have direct access to any documentation he should so choose in pursuit of his constitutional duties, there may well be circumstances where documents could contain information that would be harmful either to any individual or an enterprise if they were made public. Indeed, every Deputy in this House, I am quite certain, could cite many instances of the interaction between individuals, or companies, with the State where confidential commercial information is made available to Government Departments. The accounting officer for the Department of Energy in his capacity as secretary for example also holds a full range of such information from off-shore exploration information to details on oil company operations together with mining, prospecting and other development information. There are many instances when it just would not be possible to release information in any way which could be identifiable as pertaining to an individual or a company. The very operating methods of the CSO are familiar to all Members of the House; Government Departments are effectively bound in the same way.
The committee in their concluding remarks in their report call for changes in the terms of reference of the committee along the lines proposed by their own special report dated 18 May 1988 on the future role of the Comptroller and Auditor General and the Committee of Public Accounts. I can tell the House, however, at this point that the Government have before them at present proposals from my colleague, the Minister for Finance, in regard to the future role of the Comptroller and Auditor General. The recommendations in the 1988 special report of the Committee of Public Accounts on "The Future Role of The Comptroller and Auditor General and The Committee of Public Accounts" are being considered in this context. I should also mention that the Department of Finance have circulated separately proposals in regard to the complex issues of privilege and compellability, issues brought to the fore also by the need to cater for the possible televising of Oireachtas committee proceedings. It is expected that the proposals will be brought before the Government at an early date. It will be appreciated, therefore, that until the Government have fully considered these matters and reached decisions on them, I am not in a position this evening to comment in detail on the views of the Committee of Public Accounts in that regard.
From the evidence given by the accounting officer and what I have said here today, it is crystal clear that the conclusions drawn by the Department and their advisers from all the evidence available to them, including the confidential information obtained from Tara, that the realised price of $50 million was very favourable when compared to the reasonable expectation of the value of the State's interest was in the region of $40 million. I can assure the committee and this House that any perusal of the report and its supporting information would not lead to the conclusion that the State was sold short in these negotiations.
I can also categorically state that without these confidentiality provisions the State would have been seriously handcuffed in securing essential information in the hands of the company and would have suffered accordingly. No such inhibitions, of course, applied to the majority shareholder who was in possession of all the relevant files through their control of Tara. In those circumstances confidentiality has its uses and must be respected, even if the question of breach of legal obligations and possible claims for damages never arose.
