Vol. 460 No. 7
19 Mr. S. Brennan asked the Minister for Transport, Energy and Communications the reason he considers it necessary to pay over £3 million to consultants to advise on the disposal of 35 per cent shares in Telecom Éireann, particularly in view of the fact that a number of bidders have withdrawn from the process. [2027/96]
37 Mr. S. Brennan asked the Minister for Transport, Energy and Communications if he is concerned at the withdrawal of a number of bidders from the proposed sale of 35 per cent of Telecom Éireann shares. [2023/96]
I propose to take Questions Nos. 19 and 37 together.
The Telecom Éireann alliance is one of the most complex transactions ever undertaken in the State sector. It will involve the consideration of a complex series of interrelated issues, not just the sale of a minority stake in the company but also the future regulation of the telecommunications sector, the future development of the sector and the financial and operational strengthening of Telecom Éireann in preparation for competitive markets.
The alliance fundamentally is not driven by financial considerations. The process is concerned with finding a partner prepared to make a long-term commitment to the transformation of the company to prepare it to compete successfully in the competitive market just around the corner. To ensure a successful conclusion to the alliance process, it is essential that the shareholder and, ultimately, the taxpayer, gets top quality advice on all the issues involved as a basis for negotiating and concluding the best deal possible.
During the summer of last year, a tender for competition was held under EC procurement procedures and as a result an international consortium of consultants was chosen and the fee terms were agreed and fixed at that time.
The consortium is led by investment bankers Morgan Stanley. It also includes legal advisers Skadden, Arps, Slate, Meagher and Flom and telecommunications strategic advisers Arthur D. Little. This consortium provides excellent coverage for all the strategic, financial and legal issues likely to arise in the course of the alliance process.
The strength of the experience of the consortium is emphasised by the fact that Morgan Stanley took the lead advisory role in the recent successfully concluded alliance process in Belgium. Arthur D. Little was also involved in that process. The legal element of the consortium has arguably one of the finest track records in similar transactions in global terms. It should be noted that the Belgian process was the first time that an equity based strategic alliance had been put in place for an EU public telephone operator.
The fee agreed with the advisers at the time of appointment represents the best value available as a result of the tender competition in an increasingly competitive market. I am satisfied that, given the range of expertise offered, the major issues to be considered and the benefits likely to accrue both to the shareholder and the economy as a whole, the fee represents excellent value for money.
While the consultancy fee looks high, it is anticipated that it will represent less than 1 per cent of the proceeds likely to arise from this transaction. This is significantly lower than the charge likely to arise from a more straightforward flotation or placement. In addition the alliance process involves considerably more work than either of these transactions. Very importantly, the consultants are also assisting the company, thereby avoiding the very significant expenses involved in the retention of separate advisers by the shareholder and the company. Put simply, we are getting more for less — a fact which is obvious to any informed commentator on the process.
There are 15 minutes remaining during which we must deal with four priority questions. I want to facilitate all Deputies concerned but I ask for co-operation on this matter.
Does the Minister genuinely think he should not have demanded a lower figure than £3.7 million? On reflection does he think this is an extravagant fee for selecting one company from among five bidders, which is quite simple work? The number of bidders may even be reduced to two or three before the process finishes. I would not have agreed to pay a fee of £3.7 million for this type of work. Does the Minister think this is good value for money?
We went through the proper procedures and made a decision after the competitive process had been observed. I am reliably informed that the fee involved in this process is less than 1 per cent of the likely proceeds of the transaction, which is lower than the norm for transactions of this nature.
I disagree with the Minister. He knows my view that we have not fully discussed the strategic alliance process. It now seems to be running into trouble. There were originally seven or eight bidders but their number seems to have been halved. The number of bidders is likely to decrease and I predict that more will pull out and there may only be one bidder in the end. Nobody will pay £500 million or £600 million to be locked into a State company. They will want control of the company before they pay this amount. No persons in their right senses would take the kind of deal on offer.
The Estimates do not provide for a penny being received on this deal during 1996; this will not happen until 1997. I do not expect the Minister to agree with me at this stage, that this process is unravelling quickly and will not work. Will the Minister consider giving Irish pension funds, which consist of workers' money, the opportunity to buy some or all of the 35 per cent of the shares? Will he consider putting these shares on the Irish Stock Exchange so that pension funds can be invested in this fine company, rather than this money going overseas as it is at present?
This process is on target and will deliver the required results. I took over this process more than a year ago. It was obvious at that stage that the company was not in a position to undertake this process without the necessary accompanying corporate policy and regulatory changes being put in place. The previous Government, of which the Deputy's party was part, sat on this process, opted for the maximum derogation from competition and ignored the issue, hoping it would go away. Nothing was done to bring about the policy changes necessary for the alliance. There was no negotiating mandate in place when I came into office. There were no Government advisers and no step had been taken to appoint an independent regulator. Action had not been taken on preparing the necessary legislation to allow an alliance to proceed and there had not been decisions on tariff regimes, on interconnect, on universal service obligations or quality of service issues.
This is not happening now either.
I put all of these enablers in place in just over one year. I have provided for earlier competition and have taken the necessary steps to allow Irish consumers to enjoy the benefits of the alliance which competition will bring.
Nothing has been provided in the Estimates for the strategic alliance.
I have put in place the key enablers to provide for the transformation of the company in the context of the alliance process. The only decision made by the previous Government was to deny Irish telecommunications customers the benefits of competition for the maximum possible period.
That is a ridiculous negative statement.
The Minister has not answered my question.
The Chair has no control over Ministers' answers.
My question is simple. Will the Minister consider putting the 35 per cent of the shares on the Irish Stock Exchange where Irish pensions funds, which consist of workers' money, can be invested?
I have already outlined the Government's policy and initiatives in this area. We are well on the way towards implementing the policy I have outlined.
You will not consider it?
The Minister should carry on with privatisation; he is heading in the right direction.
