As the first two items on the Adjournment relating to shareholdings in Eircom are being taken together, each Deputy will have five minutes and the Minister ten minutes to reply.
Adjournment Debate. - Eircom Shareholdings.
We might just wait a moment, a Leas-Cheann Comhairle.
Could we have silence for Deputy Yates, please?
If the Deputy is going to put his feet in it, he may as well do so in silence.
Five minutes does not allow me to do justice to this critical issue.
It allows him to do damage to it.
Anyone who reads page 27 of the prospectus for Telecom Éireann, issued last June, can only draw the conclusion that KPN-Telia was of a different mind in relation to the strategy. This sets out clearly that Telia, for regulatory reasons concerning the merger with Telenor and its interests in the Irish market, was going to divest its stake. It was clearly set out that KPN-Telecom is not restricted from increasing its shareholding in the company to a level not exceeding 29.9 per cent. There was the facility for them in the short-term to increase it and take up to 5.9 per cent of Telia shares. There was the further prospect that after 18 months they could buy even more shares. I have trawled through the papers and newspaper clippings, yet nowhere have I found it stated that KPN intended to exit within six months. I also have confirmed the date of finalisation of the IPO as 7 July.
What did the Deputy do when he was in Cabinet?
Please allow Deputy Yates to continue without interruption.
Six months have not elapsed and Deputy Roche's barracking will not cover up what is a very serious issue. Reading page 26 of the prospectus I am deeply concerned that it is actually in the interests of KPN to let the average traded price, between 1 November 1999 and 31 January 2000, drop below the IPO price and they will pay less to the Government.
That is a lie.
They could actually sell their shares after that date.
I must ask the Minister to withdraw that remark.
I withdraw it. It is an untruth. Am I allowed to say that?
That is what the paragraph under comsource clearly states. When I went to the website to see what KPN said about this, I found it interesting that there was no mention of investment in central or eastern Europe. It says the sole reason it is pulling out is that "one of the key objectives pursued by KPN in relation to affiliated and associated companies is the exercise of effective management control which is not provided by the current investment in Eircom". That is its stated reason, not mine, on its Internet website as of yesterday. I want the Minister to clarify a number of specific points. When did she know it was likely that KPN would pull out? Did she know last June or last week? When did she or her officials know? Will she state clearly the nature of the clawback or top-up price mechanism? Will she state the position in regard to the senior staff, the top experts, who came from KPN and Telia to give credibility to Eircom? Will they all stay? Are they contractually obliged to do so?
Will the Minister state that the Government will do everything possible to resist the take-over of Eircom? In the critical area of telecommunications investment for the future, it is unacceptable that a corporate board will decide, as part of its own investment strategy, the level of investment in Irish telecommunications infrastructure, which is more critical to our competitiveness than anything else. That is my biggest concern. While it may be in the interests of the shareholders—
The Deputy must allow Deputy O'Shea to contribute.
—to make an extra quick buck in the short term through a take-over, it would be disastrous for the economy because we would be divesting control of 99 per cent of our infrastructure. In regard to the issue of future investment, it is essential that Eircom is in a strong position for a rights issue and to invest and grow. We all wish Eircom every success. I hope a strategic partner can be put in place for up to 30 per cent of the company, which will ensure that.
I welcome the opportunity to raise this important matter. Telecommunications are an essential part of any modern economy. It is a sector that has provided much employment and generated much wealth in our economy, particularly over the past decade.
However, we must appreciate that we are now only at the beginning of the telecommunications revolution, a revolution which will develop and grow at an exponential rate over the coming years. It is imperative that Ireland is to the forefront of this development. To this end, it is right that this House expresses an interest in the key players which operate in the newly deregulated telecommunications market. That is the background to raising this issue on the Adjournment.
The surprising decision by the telecom company KPN to sell its 21 per cent share in Eircom raises a number of key issues. I have no intention of using this issue as a political football or making unfounded claims about an important commercial company. However, I want the Minister to inform us of the impact of the KPN decision on future development of our telecommunications sector.
Between them, KPN and Telia purchased 35 per cent of what was Telecom Éireann in 1996. The rationale behind this move was that these experienced companies would provide a strategic alliance which would enable Telecom Éireann to develop its telecommunications infrastructure and capacity in a rapidly changing market. Developments in the international telecommunications sector rendered Telia's shareholding anti-competitive and that company had signalled its intention to divest itself of its Eircom shareholding. Yesterday, news of KPN's intention to sell its Eircom shareholding was made public.
I hope the Minister will outline the steps she has taken, or intends to take over the coming days, in the light of these new developments. Has she had discussions with the chairperson or board of Eircom? Specifically, has she raised the issue of the company's capacity to continue its expansion of telecommunications infrastructure after the departure of the strategic partners? In addition, has the Minister been in contact with the Director of Telecommunications Regulation? Is the Minister aware of any proposal by Eircom to source another strategic partner with the capital and technical know how to drive the expansion of the Irish telecommunications market forward? In addition, will the Minister inform the House of the status of the payment due to the Exchequer under the original contract of sale agreed in 1996, whereby the companies would make a final payment based on the trading price of the shares over a three month period?
The news of the pull out by KPN comes hot on the heels of the collapse of the telephone system in Dublin for a number of hours last Friday week. It is important that these issues are put in context. Almost 500,000 citizens invested in Eircom and, as shareholders, they expect the board of that company to explain these developments. In addition, thousands of Irish workers depend on this company for employment and their needs must be foremost in our minds when raising this important issue. However, as politicians with responsibility for the overall direction of telecommunications policy, we also must have a response from the Minister to these developments.
I am always very happy – sometimes too enthusiastic – to come to the House to debate issues and to share information on matters for which I have direct political responsibility. On this occasion, however, I have no such responsibility. I ask my colleagues in the House to exercise prudence in refraining from saying anything under privilege which will give rise to erroneous investor perceptions of Eircom, thereby affecting the company's share price. I know that is what the Deputy wishes to do.
The Deputy will drive the price down. It is sabotage.
As the Deputy is aware, Eircom is now a private company and I have no responsibility in relation to either its commercial operations or its capital structure. I have taken legal advice on what I can say. The decision by KPN and Telia to withdraw from Eircom is a matter for those parties and it would not be appropriate for me to comment.
As the House knows, the strategic alliance agreement between the State, Telecom Éireann, KPN of Holland and Telia of Sweden was concluded by the then Minister, Deputy Lowry, in December 1996. Under this agreement, KPN/Telia acquired a 20 per cent stake in the company for an initial down-payment of £183 million, with an option to acquire a further 15 per cent of the company for £200 million by the end of 1999. The full and final price of the 1996 deal is based on a negotiated agreement by which the State gains 60 per cent of the rise in value of KPN-Telia's shareholding after three years above a certain threshold, by way of a so-called clawback arrangement. I repeat that this deal was worked out in December 1996 by the then Minister, Deputy Lowry.
That was not the only deal between Deputy Lowry and KPN-Telia.
Deputy Roche is very consistent.
The Minister, without interruption.
(Interruptions).
KPN-Telia exercised the option to increase their stake to 35 per cent immediately following the IPO, and a payment of £200 million was made to the Exchequer. This increased KPN's stake to 21 per cent and Telia's to 14 per cent. Under an IPO agreement between the parties, the additional amount to be paid was to be determined on 31 January 2000, on the basis of the lower of the IPO offer price or the average price of the shares for 90 trading days ending on that date.
An amendment to the agreement between the Ministers for Public Enterprise and Finance and KPN-Telia was signed on Friday, 26 November, which strengthened the original agreement by guaranteeing that the clawback arising from the 1996 agreement will be based on the IPO offer price. This ensures the payment of an additional £1.16 billion by KPN-Telia and it is payable on 7 February 2000.
I have no responsibility for this company, nor have I any right or need to come to this House to discuss it. I came because of the erroneous untruths which were peddled all day yesterday by Deputy Yates. I have taken legal advice on what I can say and I have even pushed that out. It is clear that Deputy Yates is attempting to ensure the share price of Eircom falls. That is his one aim in life and that is what he is endeavouring to do.
Ridiculous.
I have set out what I am legally allowed to say and I intend to say no more.