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Dáil Éireann díospóireacht -
Thursday, 28 Apr 1994

Vol. 442 No. 2

Kilrush Creek Marina — Interim Report: Motion.

I move:

That Dáil Éireann takes note of the Interim Report, of the Committee on Public Accounts on Kilrush Creek Marina."

The Kilrush Creek Marina project was brought to the attention of the Committee of Public Accounts by way of paragraph 46 of the Comptroller and Auditor General's 1991 report. The committee has called and examined many witnesses and has spent many hours in producing this report. I think Deputies will agree that this is a worthwhile report. It would be very easy to be critical in a negative sense but I would like to think that the product of the committee's extensive examination would be a great aid to all those embarking on similar projects in future.

I would especially like to thank the members of the committee for the effort and time they put into this report. In the light of recent events it is a fine example of how a cross-party committee could and did work for the benefit of the Irish taxpayer. I would also like to thank the Comptroller and Auditor General for his help to the committee during its deliberation. The staff of the committee did sterling work on this report and the committee would like to express its gratitude to them.

As a Deputy from Dublin I am very conscious that the remote areas of the country need special consideration. Notwithstanding the criticism of this project, Kilrush and its hinterland will benefit from the project for many years. It has greatly improved the surrounding environment and I wish it every success. However, that in no way detracts from the committee's criticism of the cost of the project and its management.

Underpinning what I am about to say is the cold fact that the State ended up paying twice what was originally estimated as its share of the entire project, but got only half the project originally planned. We got only quarter of the value originally projected, in other words what we got cost four times more than what was planned. How did this happen? SFADCo did not cover itself in glory from the outset. Its planning and specification of the project was totally inadequate, which led to an understatement of the likely cost.

Its financing plan did not bear any resemblance to the reality of what was available. Its financial projections were wildly over-optimistic and this resulted in the subsidiary company incurring costs of £2.3 million, without having the means to fund it, with the State having to bail it out.

We had the absurd situation whereby the subsidiary, SMDL, had fewer borrowing restrictions than SFADCo, its parent company, and the remuneration of the chief executive of the subsidiary was less rigidly controlled than that of the chief executive of the parent. This was not just as a result of SFADCo's hands-off approach to the management of the project. The unavoidable conclusion is that the board of the subsidiary, which was totally made up of SFADCo, personnel, circumvented the SFADCo board which they all represented.

Even allowing for the lack of supervision on SFADCo's part, the subsidiary was imprudent in its own right. It is clear that the subsidiary managed the project without the traditional prudence that public servants should have when dealing with public moneys. Its approach was conditioned by an over-zealous enthusiasm to put in place a project of a scale which it viewed as appropriate, regardless of the cost which effectively culminated in an almost total abdication of their control and responsibility.

The lessons we can learn from this case emphasise the need stringently to control the activities of subsidiaries where they have the propensity to expose the parent company and, by extension, the State to major financial repercussions.

The Department of Tourism, Transport and Communications has not come out of this examination smelling of roses. It is obvious from the committee's examination that that Department had enough information at its disposal to alert the company to what was happening, but did not pick up the danger signals until it was too late. Why did this happen?

Having made an inquiry the Department was fobbed off very easily and did not pursue the matter any further which seemed to give the impression to SFADCo that the Department was satisfied with developments. One representative of the Department of Tourism, Transport and Communications and one representative from the Department of Industry and Commerce, as it was then, were on the SFADCo board and both were aware of the expansion of the project and the increase in costs, particularly during the period March to October 1989. Both representatives were aware of the revised cost of the project of £12.5 million — the original cost was just less than £7 million. For example, the board representatives from the Department of Industry and Commerce sent a copy of a brief containing the revised costs submitted to the board on 27 October 1989 to the line division of the Department of Tourism, Transport and Communications with a query: "Is it too late to stop this project?" On the other hand, the Department of Tourism, Transport and Communications' representative in evidence expressed his opinion that to pass a document to the line division in his own Department was not the proper way for a departmental representative to function, even though in this case he was the senior officer of the line division responsible for SFADCo.

Part of the problem was that each representative had a different perception of what his role as a board member entailed. Obviously there is some ambiguity about what their role should be. One of the lessons that has been learned from this experience is the balance that must be achieved as a civil servant board member with the need to protect the Minister's interest. The report illustrates the appalling lack of reporting procedures within the Department of Tourism, Transport and Communications and between it and the agencies for which it is responsible.

It is salutary to note that private investors were much more careful in investing their money compared with the less cautionary attitude taken by officials in the three Departments and this is perhaps a sign of the different criteria used. In any future joint ventures between the public and private sectors it should be imperative that private funds be in place before the project is proceeded with.

As a general observation, I was not entirely happy with the way certain aspects of the Department's evidence was presented. As a result the committee has proposed new guidelines for Accounting Officers appearing before it.

In the light of recent experiences the Committee of Public Accounts has deemed it necessary to draft and issue, in consultation with the Department of Finance, clear guidelines as to what is expected of Accounting Officers appearing before it in relation to, inter alia, (a) the completeness of their briefing on all aspects of the Vote for which they are accountable; (b) the completeness of the information they give in replying to questiv tions of the Comptroller and Auditor General and of the Committee of Public Accounts, and the accuracy and completeness of the context in which it is given; (c) the steps they should take and the manner and speed with which they should deal with a situation where they subsequently become aware that information they gave the committee was inaccurate, incomplete, out of context or otherwise misleading; (d) the manner in which files are maintained in their Departments, and their co-operation and promptness in providing files to the committee and the Comptroller and Auditor General when so requested; (e) the degree of knowledge and control expected of Accounting Officers by the committee in relation to the activities of their Departments and of semi-State bodies and other agencies for which their Departments are responsible; (f) value for money, efficiency and effectiveness, including the maximisation of assets of the Department and (g) internal departmental audit and control mechanisms.

It is my view also that more up-to-date guidelines for civil servants serving on State boards is required and the Department of Finance has been called on to report back within three months on this matter. It is vitally important that speedy action is taken in respect of both sets of guidelines. We also requested the Department of Finance to ensure that subsidiaries of State companies are subject to the same criteria as their parent company.

The Committee of Public Accounts has no power of sanction and that is how it should be. It is only right, however, to draw this report to the attention of the Government and ask it to take the appropriate action. If all concerned get away scot free it would send out the wrong signal to the entire public service. It would also reduce the impact of the excellent work being done by the Committee of Public Accounts.

By debating this report, I hope the House will lay down markers for public sector investment projects in the future and ensure the taxpayer gets value for money.

This is the first debate by this House of a report of the Committee of Public Accounts under the new legislation. Last year, the Comptroller and Auditor General Act which was promoted by the Government was passed into law. Part of that Bill requires that reports of the Committee of Public Accounts should be debated as soon as possible within the House. I want to express my appreciation that the Government made time available so readily when requested to do so in this case.

In relation to Deputy Mitchell's final comments, we are happy to have the opportunity to have this debate and look forward to many other opportunities which will be of benefit to the House and to the benefit of how administration, expenditure and other such matters are dealt with in the future.

On behalf of the Minister for Tourism and Trade, Deputy McCreevy, I would like to thank the Chairman and members of the Committee of Public Accounts for their incisive and comprehensive report on the Kilrush Creek Marina Project. The committee, in its report, highlighted a number of deficiencies and made some important recommendations dealing with controls on public expenditure, relationships between Departments and State bodies under their aegis and controls and reporting relationships between State bodies and their subsidiaries. Other important issues addressed in the report include controls on salaries of chief executives of State bodies, the role of civil servants as board members of semi-State bodies and the arrangements of accounting officers appearing before the Committee of Public Accounts.

The events surrounding the development of the Kilrush Creek Marina project, date from early 1988 and were dealt with by the former Department of Tourism and Transport and not by the Department of Tourism and Trade, which, since its establishment in January 1993 assumed responsibility for the functions of Shannon Free Airport Development Company Limited in respect of tourism and the development of air traffic at Shannon Airport.

The Minister for Tourism and Trade fully accepts that mistakes were made in this case and hopes that valuable, if expensive, lessons will have been learned from the experience. Before dealing specifically with the findings and recommendations of the Committee of Public Accounts I will outline briefly for the record of the House the history of the project.

The project was first mooted by SFADCo early in 1988 when it was brought to the attention of the board in March of that year. At its meeting in April 1988, the board approved the project at an estimated cost of £7 million. Phase I, harbour and marina developments, was to have cost £3.8 million, and was to be publicly funded. Phase II, tourism works, costing £3.2 million was to have been met by the private sector.

In June 1988, an application was forwarded to the European Commission for European Regional Development Fund assistance towards the cost of Phase I of the project. In November 1988, a significant development took place which was to become a major contributory factor in the problems later to beset the project. At its November board meeting Shannon Development approved the creation of a wholly owned subsidiary, Shannon Maritime Developments Limited — SMDL — to facilitate progress and implementation of the project.

In December 1988, the EU Commission approved a grant of £1.78 million for Phase I of the project. In October 1989, SMDL advised the board of Shannon Development that the cost of the project had escalated to an estimated £12.5 million. The board refused to take a decision on the proposals put forward by SMDL and took steps to bring the matter under the control of the main board so as to contain proposals for expenditure on the project.

At its next meeting in November the main board was advised that the views expressed at its October meeting would be fully incorporated by SMDL into its strategy and operation. The board indicated that in any future consideration of the project a number of issues would have to be clarified including: (a) phased implementation of the project to ensure it success while minimising the financial exposure of Shannon Development; (b) options for scaling down the project and (c) the question of private sector funding for the project.

In October 1990, SMDL made another presentation to the main board indicating a total funding requirement of £9.5 million and a requirement for an extra £400,000 capital from SFADCo. No decision was taken by the board on either the revised total cost of £9.5 million or the extra £400,000 requested from Shannon Development. The board had reservations about the lack of private sector funding for the project and advised SMDL to put a BES scheme in place as soon as possible. Unfortunately, this fund raising effort did not succeed.

In March 1991, company executives informed the former Department of Tourism and Transport that the project was in debt to the tune of over £2 million with no moneys to meet it. That Department immediately began an investigation into the finances and management of the project.

Subsequent developments included approval by the then Minister for Industry and Commerce for Shannon Development to borrow £1 million to enable payment of the creditors of SMDL, various corporate changes within SMDL and approval of £1 million European Regional Development Fund grant from the Operational Programme for Tourism. The Department of Tourism and Transport made its approval of SFADCo's current and capital expenditure in 1992 conditional on the company using £300,000 of its voted allocation and £200,000 of its non-voted allocation to reduce the principal of the outstanding loan for the Kilrush project. With the assistance of SFADCo, SMDL managed to wipe out the debt completely by the end of 1992, including £393,000 from the sale of SFADCo's shares in Rent An Irish Cottage.

The marina eventually cost £6.55 million and has berthing facilities for 118 boats. No private sector investment materialised for the project.

The deficiencies in the controls applied to this project, as highlighted in the findings of the Committee of Public Accounts, are generally accepted. It is most important to stress what has been learned from this unfortunate experience and to outline the specific corrective steps which have been put in place in the light of that experience.

The Memorandum and Articles of Association of all subsidiary companies have been amended to bring them into line with the parent company. This amendment specifically includes the rules relating to the powers of subsidiary companies to borrow. No subsidiary company now has greater borrowing powers than the parent, Shannon Development. Therefore, if the need should ever arise, any borrowings will have to be approved by the board of Shannon Development and have the consent of the Minister for Enterprise and Employment.

Revised financial control arrangements have been implemented for the Shannon Development group. Up to June 1991, financial control rested with each company and no formal group reporting system was in place. In June 1991, the financial control of Shannon Maritime Developments Limited was brought within the control of Shannon Development finance division, and in January 1992 responsibility for financial control of all other subsidiary companies was brought within the parent company's control.

All new subsidiary companies being established by the company must have the approval of the Ministers for Enterprise and Employment and Finance.

Revised operational arrangements have been put in place regarding the company secretarial role. The company secretary of Shannon Development is now also the company secretary for all group companies and attends all companies' meetings. In addition, all subsidiary board minutes are copied to the main board members.

The subsidiary company boards appointed by the parent company's board, have been strengthened by the inclusion of private sector non-executive directors with skills and expertise directly relevant to the activities of these companies.

Within the executive structure of Shannon Development, the functional responsibilities were revised in June 1992 leading to increased focus and clarification of direct responsibilities for all activities ongoing within the group.

The role of the chief executive of the main company was redefined in May 1992 which confirmed direct responsibility for all activities within the group including the activities of all subsidiaries.

Shannon Maritime Developments Ltd. was wound down during 1993. The fixed assets of the company will revert back to Shannon Development and a new operating company has been formed to manage, operate and promote the marina. The new company, formed in November, 1993, is Kilrush Creek Marina Ltd., and its board is made up of representatives of the board of Shannon Development, executives of Shannon Development, local authority and local tourism interests. A representative of the Department of Tourism and Trade is also on the board of Kilrush Creek Marina Ltd.

In March 1992, revised Government guidelines were issued to all State-sponsored bodies, including Shannon Development. These guidelines set the underlying principles that should govern relationships between Departments of State and State bodies under their aegis. These guidelines are equally pertinent to subsidiary and associated entities of State bodies. They advise written codes of conduct for directors, including disclosure of interests, and they express the necessity of securing ministerial approval before subsidiaries are established or acquired. There is also a requirement to comply with Government policy on remuneration of chief executive and directors. The chairman of each State body is required to furnish the Minister with a detailed statement of compliance with the above guidelines when the annual report and accounts of the State body are submitted to the appropriate Minister. Shannon Development has given a written undertaking to comply with these guidelines.

The Minister for Tourism and Trade has taken careful note of the concerns expressed by the committee about the control of salaries of chief executives, the role of civil servants as board members and the duties of accounting officers appearing before the Committee of Public Accounts.

As regards the guidelines on salaries, the Committee of Public Accounts has concluded that the remuneration limits and guidelines applying to salaries of chief executives in the State sector were ignored in agreeing the remuneration of the chief executive of SMDL. The Minister for Tourism and Trade has noted the request of the committee that the Department of Finance issue clearer guidelines in respect of pay, conditions and contracts of employment in relation to semi-State bodies and in relation to the duties of the board of such companies to ensure that these guidelines are enforced.

In the meantime, an assurance has been received from Shannon Development that no other management or staff member of the parent board or of SMDL received any additional payment or benefit over and above the salary as provided for under the Government pay policy for the State sector.

The Committee of Public Accounts raised a very important issue of wider relevance in the public sector — the proper role of civil servants appointed to State boards by Ministers. The Minister for Tourism and Trade has noted in this regard that the Committee of Public Accounts recommended new guidelines be issued by the Department of Finance, which address clearly the role of departmental representatives on State boards and the reporting duties to their parent Department.

He also noted the committee's request for clear guidelines as to what is expected of accounting officers appearing before the committee. The recommendations of the committee in these areas will be the subject of a formal response by the Minister for Finance.

Considerable concern has been expressed about the conclusion of the committee that the Department's involved in processing the application for European Regional Development Fund for this project encouraged Shannon Development to understate the cost of Phase I so as to keep it artificially low for European Regional Development Fund approval purposes. The Minister for Tourism and Trade is advised that there is no evidence to support this conclusion. It is understood that the only advantage to be gained in the processing of projects below a threshold of 5 million ECU was a timing one as approval did not have to wait a decision of the European Regional Development Fund committee which met on an infrequent basis. Projects falling below the 5 million ECU threshold were not subject to any less rigorous appraisal than ones above the threshold. Meanwhile the Kilrush Creek Marina is open for business and is bringing benefits to West Clare.

The marina project had a successful third season in 1993 on both the marina and boatyard fronts. Almost 4,000 berth nights were sold for the first four months of the 1993 season. Boats from 11 countries used the marina facilities in addition to many boating enthusiasts from all parts of Ireland. Marina income has shown a good increase and the overall operating deficit continued to fall as budgeted for in the projections for the start-up period.

The boatyard, which operates on a year-round basis, is widely used by leisure and in-shore commercial craft operators along the West of Ireland for the construction, repair, servicing and storage of all types of boat.

The marina has had a major impact on the economic and community life of Kilrush and West Clare. The project has been the catalyst which prompted the development of several tourism related projects, involving an overall investment of over £2 million in the area, including a major urban renewal programme spearheaded by Kilrush UDC; the development of a local heritage centre theme on landlordism in the area; the granting of national heritage town status; the provision of yacht chartering and sea angling holidays from the marina by a private sector company, Atlantic Adventures Ltd., which has expanded its fleet from six boats initially to 11 today, representing an investment of over £0.5 million; the building of an 18 unit holiday home complex, Cappa Holiday Village, on a site overlooking the marina by a private developer which cost over £1.2 million; considerable private sector investment in the upgrading of existing tourism plant in Kilrush and the Office of Public Works has purchased two pontoon berths at the marina and built Scattery Island visitor centre adjoining the marina to cater for visitors to the island.

The experience of the Kilrush marina project has been less than satisfactory and has again raised a number of important issues in regard to control of public expenditure. Lessons have been learned and steps taken to prevent a recurrence.

Apart from the specific measures taken by Shannon Development which included revised structures, amended memorandum and articles of association, increased internal financial and secretarial controls and enhancement of subsidiary board expertise, the guidelines issued by the Department of Finance in March 1992, set the framework for the governance of semi-State bodies including subsidiaries.

The Department of Tourism and Trade is applying the full rigour of the guidelines. While we cannot say with certainty that mistakes will never be made in subsidiaries of semi-State bodies, we now have a control system in place which should help to prevent a recurrence.

Debate adjourned.
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