CIE as an organisation are undergoing change in response to the transport and economic environments of today. The changes are influenced by the organisation's past — 1982 was the 13th year of losses escalating by a multiple of the rate of inflation — demand for CIE services and the need for a more dynamic organisation so as to compete effectively in the transport market. There is also the need to take account of the CIE social role.
When I came to office, my first priority for CIE was to create a new environment for CIE to operate within. A new five-year approach to ClE's finances had been decided on within six months of my arrival. The abandonment of the wishful thinking, the lack of control and the drift, which characterised Government's relationship with CIE for many years past, became a must.
The first set of changes was introduced in June 1983. This consisted of a package of measures covering a five-year period aimed at reducing CIE cost to the Exchequer and improving the organisation's performance. This package included new arrangements for determining the CIE subvention, which is now limited to the lesser of either half of the board's revenue or to one-third of their expenditure. For the first time ever payment of the subvention "above the line" was introduced in recognition of the provision by CIE of certain unprofitable but socially desirable services.
Once that package of measures was in place to take account of pressing short and medium term issues, there was an immediate need to look at CIE and their role for the longer term. Most of 1984 was taken up with that issue so as to build on the foundation laid in mid-1983. Conclusions on the longer term future of CIE, in the context of the McKinsey Report on CIE and other reports on the transport sector, were overdue. The Government initiated a fresh start for CIE in Building on Reality.
The new Government subvention formula effectively provided that one-third of ClE's expenditure would be paid by the Government provided that expenditure is reduced in real terms by 2½ per cent per annum up to 1988. This was extended to 1989 in the context of the national plan. That these targets have been met so far, and without massive redundancies or cuts in service, is testimony to the wisdom of the approach. Now CIE know well in advance what their allocation is and can plan to keep within it.
Previously, a figure — often bearing no relation to reality — would be notified to CIE two or three weeks before the commencement of the relevant financial year. This lack of notice and lack of reality were constantly rewarded, not surprisingly, by being ignored. As a result ClE's finances had rocketed almost out of control. The deficit for 1982 was in excess of £109 million. This contrasts badly with about £15 million, which would have been the deficit had it been kept in line with inflation over the previous 15 years.
The improvement now is perceptible and real. The years 1983 and 1984 have brought a 20 per cent reduction in real terms in the CIE deficit. This is good news, not alone for the board, management and workforce of CIE, but also for the taxpayer who has to fund them. While there is no room for complacency, I think it right that these achievements should be recognised and I want to congratulate again all in CIE for their efforts.
The financial provisions have been accompanied by a major overhaul and strengthening of the board of CIE. The introduction of the Dublin Transport Authority Bill and the Road Transport Bill are further steps in the creation of the new environment which I have set out to establish.
The Bill to reorganise CIE into three operating subsidiaries under a parent board is in preparation. I had hoped to have it before the House at this stage. That was not realised but it will be enacted as soon as possible and, in any event, before the end of this year. The whole purpose of the reorganisation is not to close CIE, as some pessimists fear, but to ensure their future by organising them in a way best suited to serve the customer, whose support is vital to any company's success. The completion of the reorganisation is in the best interests of the workforce and the travelling public alike.
All in CIE make their contribution not only to CIE services but also to the financial results. They have a major role in ensuring that recent encouraging trends in the CIE performance are consolidated and developed.
So far in 1985, the CIE financial performance is on target for a further reduction in the deficit in real terms. This with a deficit of £104 million for 1983 and an expected deficit of under £105 million in 1984, on the basis of excluding the special provision for capital interest charges on the DART system, represents a dramatic improvement after the trend of the previous 15 years. Inflation has been down to low single figures over the past few years and CIE are still beating it — a cause for much encouragement.
The decisions taken so far by the Government and the financial provisions made in relation to CIE were fundamental for creating a better operational environment for the organisation. Change in the environment is on-going. There is, however, no room for complacency. ClE's future must be one of efficiency and effectiveness with due regard to what the Exchequer can afford to bear. The measures which have been taken and are planned are in the longer term interest of CIE and their employees.
The Bill before the House is of significance for CIE's operations and capital programme. It is another constructive development in the creation of an improved operating environment for CIE.
The purposes of the Bill are, first, to enable CIE to convert £30 million of the board's temporary borrowings into a loan repayment over a period of ten years with the Exchequer providing £3 million annually for repayment of the principal of the loan and, secondly, to increase the statutory limits on ClE's capital borrowing power from £230 million to £250 million and the corresponding guarantee powers of the Minister for Finance.
Under section 4 of the Transport Act, 1983, CIE may incur with my consent and that of the Minister for Finance, temporary borrowings of up to £40 million. This borrowing power would normally be used by CIE to respond to short term cash shortfalls, to meet unforeseen payments and for normal overdraft purposes.
Between 1979 and 1983 the borrowing facility has been used, with Government approval, mainly to finance the difference between total CIE subvention and deficit, where the total subvention, made available was insufficient to meet the board's deficit on subventible activities. Since 1979 there was considerable expansion in the size of the shortfalls which led to the revision of the statutory limit from £5 million to £20 million in 1981 and to £40 million in 1983. At 31 December 1983 CIE had approval for temporary borrowings up to a limit of £36.245 million. ClE's temporary borrowings have remained at that limit in the meantime.
The shortfalls which arose in the period 1979-83 resulted from an assortment of reasons, for example, under-estimation by CIE, increased costs, including labour and oil charges, industrial disputes and fall-off in traffic. Other significant factors were delays in sanctioning increases in fares and rates and subvention provisions, which were not realistically related to CIE estimates of the board's requirements. Decisions to bring the deficits closer to the subvention limit set were unacceptable because they would have involved extensive cuts in jobs and services. Inadequate levels of subvention meant that the CIE financial objectives were unattainable and led to Government approval for financing shortfalls by temporary borrowing.
When I became the Minister responsible for CIE the subvention for CIE for 1983 had been already fixed at £86 million. In the review which took place immediately after the Government came into office it was clear that there was no possibility of increasing the subvention beyond that level, even though it was recognised that the board's deficit would exceed the subvention. In the circumstances the only real alternative was to let CIE carry the shortfall of almost £16 million in 1983 by temporary borrowing. This was the cause of the increase in the statutory limit in the Transport Act, 1983.
Interest charges paid on the temporary borrowings, which fall to be met by the board out of their revenues, in the period 1979-84 amounted to almost £13 million. In 1984 alone the interest charges amounted to about £4.5 million. It was clear to me from the beginning that the interest charges on the temporary borrowings were a considerable burden on CIE. I felt that the board should not have to bear the handicap of interest and repayment costs, arising in the main from the failure of Government either to provide in the past adequate levels of subvention over a number of years or to take decisions which would have enabled CIE to move significantly closer to the direction pointed by the subvention limits fixed.
Furthermore, the costs of temporary borrowings are high because of the levels of interest demanded for short term loans and the associated roll-over costs. Additionally, the hard core nature of the debt was becoming a source of concern. I came to the conclusion that a substantial reduction at an early date of the principal sum outstanding was essential and saw an urgent need to relieve CIE of the bulk of the burden as quickly as possible.
In planning for ClE's future the Government decided to reduce the board's temporary borrowing by £30 million by re-scheduling £30 million of the £36.245 million borrowings into a ten year loan. The enactment of the relevant provision of the Bill is necessary so that CIE can raise a loan of £30 million repayable over a ten year period in equal annual instalments, financed by the Exchequer. The board will continue to be responsible for the interest charges on the loan as well as the balance, that is £6,245 million of the temporary borrowings, but the charges will decrease annually in line with the repayment of the principal. It is the board's responsibility to eliminate the balance of the temporary borrowings from their own resources. The existing statutory limit of £40 million for temporary borrowings is being retained.
The treatment of CIE temporary borrowings in this way will make a useful contribution to the regularisation of the finances of CIE by relieving the board over a period of years of substantial borrowings as well as easing the total CIE interest burden.
To complete the information on temporary borrowings, CIE will need to increase their temporary borrowings by £8 million later this year and by a further £8 million in 1986. This increase of £16 million was foreseen when the subvention allocations for 1985, 1986 and 1987 were being fixed. This will arise from the Government's acceptance of responsibility for the interest charges in respect of the capital investment in the electrification of the Howth-Bray line. These charges will amount to £16 million in each of the three years 1985-87. Because of the difficult financial situation it was possible to provide no more than £8 million in each of the years 1985 and 1986, but the shortfall in subvention of £16 million will be made good in 1987, when CIE will be paid £32 million in respect of the interest charges. These necessary additional temporary borrowings will be for a very limited period.
ClE's capital expenditure is financed from the board's internal resources, mainly depreciation provisions, borrowings, leasing arrangements and Exchequer capital advances. The borrowing arrangements require my approval and that of the Minister for Finance, who has power to guarantee them. ClE's total capital borrowings at 31 December 1984, amounted to £216.373 million. CIE need to borrow £15.416 million for capital purposes in 1985 so that by 31 December 1985, the board's capital borrowings are expected to amount to £231.789 million. As the statutory limit on capital borrowings is £230 million, it is necessary to increase that limit and I am now proposing an increase of £20 million to give a new limit of £250 million, which will be adequate to cater for the board's anticipated borrowings for the foreseeable future.
The board's original capital allocation for 1985 was fixed at £30 million and it had been expected that the existing statutory borrowing limit would have been adequate for the borrowing requirement involved in financing the CIE capital programme. However, in an effort to ensure continuity of employment at the GAC bus building plant at Shannon, the Government decided to reschedule the CIE capital allocation for bus building in the period covered by the national plan. As a result, £10 million from the 1987 allocation for bus building is being brought forward to 1985. This brings the total CIE allocation for capital purposes for 1985 to £40 million. This change created the need for increasing the board's statutory borrowing limit for capital purposes at this stage.
The Government, in recognition of this decision placing an additional financial burden on the board, decided that the extra financial charges arising should be recouped to CIE. As a result £0.5 million will be paid to the board in 1985. A similar arrangement will apply for 1986 in respect of the increased borrowing.
The Government have made provision for substantial capital expenditure by CIE over the period of the national plan. The board's capital allocations for this period amount to £93 million. Provision has been made for expenditure in this period of £36 million on the CIE bus programme, including bus acquisition. Almost £43 million will be spent on mainline rail and mainline carriage acquisition and just over £14 million will be spent by the board on their signalling/communications and normal capital programmes, including £1.16 million which has been earmarked for work to be carried out at Rosslare Harbour in 1987.
The allocations for bus acquisition will facilitate continuance of the board's current bus replacement programme which commenced in 1980. In February of this year replacement of the board's city single deck fleet was completed. In addition, 184 rural single deck buses have been programmed for construction and delivery in 1985.
The provision of almost £43 million for mainline rail, including carriage acquisition, will enable continuance of ClE's programme to construct 124 mainline carriages at Inchicore works by 1988. This programme which currently employs 61 persons was approved by the Government in 1982. The total cost of the project is estimated at £53 million in 1984 prices. The first of these carriages were put into service on the Dublin-Cork line in July of last year. A total of 34 are now in service on the Dublin-Cork, Dublin-Waterford and Dublin-Galway lines. The introduction of these new air conditioned carriages has reduced journey times and gives greater standards of passenger comfort than ever before.
The balance of ClE's capital allocations over the period of the plan, that is some £14 million, will be spent on signalling and communications and on the board's normal capital programme. The signalling programme which began in 1980 is scheduled for completion in 1988 and is designed to update the signalling system on the mainline railway. The board's long term capital borrowings are very considerable indeed. I am concerned about this level of borrowing which is a matter which will need to be given careful consideration at a future date.
I now wish to refer to rail safety about which I am very concerned. A few times this year rail safety, particularly in regard to the carriage of dangerous substances, made the news headlines. I know that the chairman of CIE shares my concerns and is willing to take any necessary steps to make good any deficiencies which are brought to light. Rail is a very safe mode of travel but continuous vigilance and awareness of the risks and dangers of rail accidents is essential. There is a need for an on-going search for additional improvements in the interest of safety. I am satisfied that current arrangements relating to the transport of dangerous substances by rail embody all reasonable and practical elements. Nevertheless having regard to recent events, I have instituted another look at all aspects of the question of the transport of dangerous substances and involving other Government Departments and other interests immediately concerned.
The Government in charting the future for CIE have fully recognised the extent of the board's difficulties and in so far as possible special measures have been introduced to deal with the situation. The Government have also, of course, set very specific financial targets for the board but they have also made available financial incentives to help in their achievement. These targets will not be easily achieved but they are realistic and should be capable of being realised. It is now up to management and the workforce to ensure the future success of the organisation.
I commend the Bill to the House.
