I will pick out the main points as I proceed. I welcome this opportunity to set out for the first time in public the thinking and strategy of the Railway Procurement Agency. The agency is just 16 months old and held its first meeting in January 2002. The legislation gives it a very specific mandate, which is to develop light rail and a metro, preferably with the participation and co-operation of the private sector. In addition, the Minister has the ability to add functions to the RPA as he sees fit. Last year, the then Minister, Senator O'Rourke, added a significant mandate to oversee a project for integrated ticketing between the various providers.
Our job is to contribute to the delivery of first-class passenger services and, particularly, to contribute to the mission set out in the Minister's statement of strategy for the period 2003 to 2005, which has just been issued. Our board's aim is to create a highly professional and innovative agency of which the public can be proud. My aspiration as chairman is to bring to the agency my 20 years of experience with the Industrial Development Authority. The agency is in a state of transition because it took over the light rail project office, which had 130 staff, most of whom were on temporary contracts. We are putting new management structures in place and making new appointments to reflect the much broader mandate of the agency.
Let us consider three significant projects of the agency - light rail, the procurement process of the metro and integrated ticketing. We expect that the new light rail service will be operating in little over a year. It is worth outlining the timetable. The construction of the Sandyford line is due to be finished in March 2004. We will allow two months to test-run the trams and address the safety issues. Therefore, we expect the service to be running in June 2004. Construction of the line from Tallaght to Connolly Station is expected to be completed in May 2004 and, allowing for a similar running-in period, it is expected to be in operation in August 2004.
A brilliant light rail service will be offered, with trams running every five minutes at peak times. They will carry thousands of passengers in each direction and it will be possible to add to this capacity as the demand increases. It will be the most convenient, smooth, accessible service available to the public in terms of access for old people, those with disabilities, etc. It will have a highly modern ticketing system and it will be possible to purchase tickets at vending machines, newsagents etc. There will be no body-stopping at the barriers and there will be smart cards. We are trying to make sure that we use the best technology and have the most user-friendly service available. We have awarded the operating franchise to an outstanding company called Connex, which is successfully operating passenger franchises in many countries. I believe it will do a superb job in terms of having a user-friendly service.
I regret that most of the public comment is not about the service. Most of it is about perceived shortcomings or failures, such as perceived delays and cost overruns. The Government has authorised a financial allocation of €691 million to cover the cost of the various contracts. In addition, it is standard that major engineering projects of this kind be allocated a risk allocation to cover unquantifiable issues such as property price escalation, contract variations or unexpected engineering difficulties. These are facts of life. The risk allocation available to us is €84 million. The agency is determined to fight tooth and nail against contractors seeking excesses etc. to ensure that it stays within this budget. The total amount the board has to work with is €775 million. Taking the risk allocation into account, we anticipate that the project will be completed within budget.
I regularly hear this project is running €100 million over budget. I do not know where this figure comes from. It probably comes from a confusion of contractual risk allocations. As far as we are concerned, these are the figures we are operating within and are determined to stay with. I am tired of the project being blackened and blackballed for the wrong reasons. If the RPA, which is only 16 months in operation, is to be assessed, it should be assessed against that figure.
It is true that these figures are considerably higher than the initial estimate of €380 million in 1994. It does not require a great deal of thought to imagine why the cost is higher today. Firstly, the project is significantly bigger in scale; it has been extended from Dundrum to Sandyford, has an increased capacity of one third, an additional depot and more trams. Apart from all this, the prices escalated during the height of the Celtic tiger from 1994 to 1999-2000. The only real measure of the cost for a project is arrived at when a figure is realised following a competitive process. The other figures are estimates in advance.
I would like to bring to the committee's attention one aspect of the price escalation that I find to be unacceptable, namely, the current system for the arbitration of property. We are in the business of acquiring land along the track. It is impossible for anybody to predict the budget for this. If one takes the current system and the equivalent estimate for land acquisition in 1998, about €25 million, we estimate that we will have to pay €100 million for property. If one goes to the arbitrator, one can have a team of specialists to dream up the best possible commercial development - one does not even need planning permission - and the odds are the arbitrator will make an award based on this. On top of that there is a 9% top-up to help reinvest the money. To talk of price escalation of €5 million to €15 million is peanuts. Every day we are fighting cases at the arbitrator's with €2 million to €10 million at risk. It is completely out of our control.
Turning to the schedule for the completion of the project, even though I keep reading about it in the newspapers, this project is not a year behind schedule. The construction of the Sandyford line will be completed in March 2004, three months behind the contractual date. The construction of the Tallaght line will be completed in May 2004, seven months behind the contractual date. These delays stem from two sources. Most of the work on the Luas relates to digging up streets to find utilities lines. Despite the best technology in imaging, in practice it has proved almost impossible to predict exactly where those lines will be and this gives rise to cost escalations that are impossible to defend against. Secondly, it took a while for the major contractor to get its act together and this led to some delays. The intense effort of our agency is aimed at making sure the revised schedules are accepted. There is no mystery about this.
Regarding the Luas extension, we are currently in discussions about an extension from Sandyford to Cherrywood. We are also in consultation about an extension from Connolly Station to the Point Theatre. We have decided to adopt a principle where if extensions are to be fast tracked in the current financial climate, we expect the beneficiaries to provide at least 50% of the funding. After public consultation if we have that, we are prepared to go to the Minister regarding both lines. It is for the Minister to decide whether it should proceed to a railway order process.
The Dublin metro is an integral part of the Dublin Transportation Office's Platform for Change document. This is the template we operate under. Our job is to contribute the Luas and metro, Dublin Bus will contribute the bus ways and Irish Rail will contribute other aspects. The Government asked us to do two things in January 2002, the first of which is almost entirely misunderstood. The Government asked us to begin a procurement process, through a public private partnership, for a metro in Dublin from the airport to Shangannagh, including a spur to Blanchardstown. The Government also asked us to develop a business case for the metro so that when the consultation process with the private sector was completed and before the Government decided to seek tenders, it would have all the information about the business case and the costs that were likely to be incurred.
This is central to the discussion on the process in which we are engaged. We began the public procurement process, under EU guidelines, in March 2002. We spent 2002 in consultation with the private sector. In January 2003 we pre-qualified 18 candidates with the experience necessary to develop a metro. One of our objectives is to maintain Ireland's credibility with those 18 international groups. We expect to be able to go to those groups in the near future and tell them if the Government is going to proceed with the procurement for a metro. We expect to be in a position to communicate this in July. If the decision of the Government is positive, we anticipate that the candidates will form consortia and enter a bidding process. It is important that we keep faith with these pre-qualified international candidates.
The second aspect of our mandate was to prepare a business case for the Government. We submitted this to the Minister in November 2002. In preparing the case, we had available to us leading experts and technical specialists, such asParsons Brinckerhof from the US, KPMG and Masons Solicitors. We recommended to the Minister that a metro from the city centre to the airport and on to Swords should be proceeded with as a first phase. In reaching this recommendation, the fundamental objective of the RPA was to provide the Government with a highly informed and robust estimate of the potential costs the State would encounter once it embarked on a PPP. It is imperative that the Government knows what the bill will be before it makes a decision. Once the decision is made, the private sector bidders have to engage in a complex and expensive process of preparing a bid. It is important that the bill from the competitive process should not carry any surprises for the Government. Otherwise, the Government would have to abort the process and the reputation of the State would be torn to shreds. Our agency is determined to assist the Government in avoiding that. The figures we have put forward are estimates of the potential bill, and I find it strange that we are under public attack because we have attempted to put into the public arena all the possible costs the Government may encounter. We have done that to avoid having to abort an international bidding process for a metro in two years time because we had not fully informed the Government of the risks. The figure is an estimate. There is a bidding process and we would expect bidders to come up with innovative ideas, new ways of doing things and be cheaper. In the process, the most efficient and cheapest group will win. We have based these estimates on current laws and procedures in relation to public hearings, environmental impact statements and so on. It is open to the Government to look at variations in these and to short cut procedures and routes that will save on cost.
The figure of €4.8 billion which is in the public arena is being compared with the raw construction costs on metros in other countries so most of the comparisons between that figure and other jurisdictions are completely erroneous. Our estimates of the final outturn cost for the city centre to airport line take into account not just construction costs but project risk, design and project management fees, insurance costs, escalation costs, interest during construction and reserves for maintenance and renewals. This is a current cash money figure. If I convert that into net present value discounted, it would be €3.3 billion. Our estimate for the construction aspect of the Dublin metro puts it on a par with most international metros in the range of €100 million to €150 million per kilometre for outturn construction costs, including Copenhagen, London docklands, Paris, Baltimore and the San Francisco airport extension. Madrid airport is a notable extension to the generality of the international experience, where the cost is around €50 million per kilometre.
