Committee Reports > List of Committees > Dáil > 1990 > Committee of Public Accounts > Final Report - Appropriation Accounts 1988

AN COISTE UM CHUNTAIS POIBLÍ

(Committee of Public Accounts)

Déardaoin, 12 Iúil, 1990

Thursday, 12 July, 1990

The Committee met at 11 a.m.

Members Present:

DEPUTY J. CONNOR deputised as Chairman.

Mr. P. L. McDonnell (An tArd-Reachtaire Cuntas agus Ciste) called and examined.

APPROPRIATION ACCOUNTS 1988.

VOTE 35 — INDUSTRY AND COMMERCE.

Mr. John Donlon called and examined.

Chairman.—This morning the Committee of Public Accounts are examining Mr. John Donlon, Secretary, Department of Industry and Commerce, in his capacity as Accounting Officer for that Department, on the audited accounts by the Comptroller and Auditor General for year ended 31 December, 1988. There are a number of paragraphs. Paragraph 50 of the report of the Comptroller and Auditor General reads:

Subhead I.—Kilkenny Design Workshops Limited — Administration and General Expenses — (Grant-in-aid)

Kilkenny Design Workshops Ltd. (KDW) was established as a limited company by Córas Tráchtála (CTT) in 1963 and operated as a wholly owned subsidiary with the aim of providing a centre for the improvement of industrial design in Ireland. In 1974 CTT’s £100 share holding in KDW was transferred to the Minister for Industry and Commerce. Under the Kilkenny Design Workshops Limited Act, 1982 the share capital of the company was fixed at £1 million of which £999,597 has been taken up by the Minister for Finance including £13,000 in 1988. Provision was also made in the Act for the payment of annual grants to the company from voted moneys to meet its administrative costs and general expenses. Grants totalling £8,179,500 were paid to the company from 1974 up to 31 December 1987.

The 1982 Act was seen as an integral part of a strategy which would see KDW attain full commerciality by the early 1990’s and ultimately obviate the need for financial support from public moneys. Retail outlets in Dublin and Kilkenny were built up and a subsidiary company, Irish Design Centre Ltd., was set up to operate a retail shop in London which commenced trading in November 1986 in premises leased from CTT in Ireland House. The London venture failed and this, coupled with accumulated losses of £0.98 million to 31 December 1987 on the Irish operations, led to a Government decision in May 1988 that an orderly wind down of KDW’s activities should be put in train. This involved the closure of the London shop and the sale of the shops in Dublin and Kilkenny as well as the sale of all the other assets and properties in Kilkenny.

In addition to the original estimate provision of £536,000 to meet the company’s administration costs and general expenses in 1988, a further sum of £250,000 was provided by Supplementary Estimate in June 1988 to enable the company to continue trading, pending the disposal of its assets. In July 1988 the Government announced the resignation of the KDW board and the appointment of a new board and an acting Chief Executive under which the company would continue trading and steps would be taken to safeguard creditors interests and to arrange for the sale of KDW’s Irish shops as going concerns. As it appeared that trade debts and bank loans were in excess of £2 million and that the sale of assets would only partially meet such debts, a further supplementary estimate of £600,000 was approved by the Dáil in December 1988 to provide funds for the payment of the more pressing of these debts. Accordingly, a total of £1,386,000 was issued from Subhead I to KDW in 1988. In addition £5,000 was issued from the Vote for Increases in Remuneration and Pensions and £168,492 from the Vote for the Public Service Early Retirement Payments.

The disposal of assets was affected by the sale of the Dublin shop and its stock to another Irish company for a total consideration of £605,000 and the transfer of assets in Kilkenny, including the shop, to a Civic Trust, comprising industrial, commercial and local authiority interests, for a consideration of £250,000. The market value of the assets in Kilkenny was estimated at £700,000. In addition, the board of CTT decided to write off the sum of £337,000 owed by the Irish Design Centre Limited which is now in liquidation. The unsecured creditors of Irish Design Centre Limited, including CTT, have no security for payments other than out of its assets. It is insolvent and its assets appear to be such that nothing more than a very small dividend can be expected to be paid to the unsecured creditors. Furthermore, some £26,000, being rent and service charges due to the Office of Public Works for the Dublin shop, was waived with the sanction of the Minister for Finance and this waiver means in effect that part of the KDW deficit is being financed from the amount voted by Dáil Éireann for the expenses of the Office of Public Works.

At the date of my Report a further £1 million had been issued from the Vote in 1989 towards meeting debts on winding up.

In summary the cost of KDW to public funds from 1974 up to 31 August 1989 was

Mr. McDonnell.—In paragraph 50, what I am doing is reciting the decline and fall of Kilkenny Desig Workshops (KDW), including their subsidiary company, the Irish Design Centre, which operated a shop in London. As can be seen, in all some £12 million of State money was put into the company during the 15 years that it operated under the aegis of the Department. The affairs of KDW are not yet fully wound up. It is estimated that a further £100,000, or more, will be required to meet outstanding liabilities. A token provision for that has been included in the 1990 Estimate of the Department. Essentially, the paragraph recites the history of KDW and how it came to be wound up following financial difficulties.

Chairman.—Mr. McDonnell, you outlined the cost to the Exchequer from 1974 to 1989 and you also mentioned that there is a provision in the Estimate in 1990. Was there anything prior to 1974?

Mr. McDonnell.—No.

Chairman.—They did not receive grants or anything of that kind from CTT?

Mr. McDonnell.—No, the full story is there.

Chairman.—Mr. Donlon, subsidies of over £12 million over a little less than a 14 year period, the bones of £1 million a year were given. Do you think the State got a fair return for its investment there?

Mr. Donlon.—Yes, I think there was a significant return to the State for its investment in this activity over the years. It was never at any stage considered that KDW, in their different forms, up until the mid-eighties, would be a self-supporting commercial organisation. It is wrong to suggest that we have not benefited as a result of the expenditure over the period. It has been widely acknowledged that the success of KDW over the past 20 years in developing Irish design made their continuing activities in the design consultancy field less and less essential.

Chairman.—In connection with the expenditure, would it be your contention, Mr. Donlon, that the benefits obtained by the economy by way of employment and improvement in industrial design were worth the investment?

Mr. Donlon.—The investment was not a waste over the period. Benefits did accrue to the economy over the period, to industry in particular, benefits which would not have been achieved in the absence of KDW, particularly in the design area. Apart altogether from the advice given to companies over that period, it led to the development of a design expertise which was fed through KDW into manufacturing operations.

Chairman.—Do you have any measure of what that investment was worth? We spent over £12 million; did we get £6 million worth of investment or did we get £12 million worth of investment?

Mr. Donlon.—It is very difficult to establish what an investment of £1 in the design and development field would mean in its impact on sales of particular products and so on. It is accepted that there was an improvement in the quality of design over the period by virtue of bringing to bear not alone expertise within the country but by buying in expertise from other countries renowned for their design expertise.

Chairman.—In 1982 it was expected that this company would be commercial by 1990. What went wrong in the meantime?

Mr. Donlon.—In the mid-eighties it was decided that KDW should strive for commercialisation. This led to their becoming involved in the retail sector in this country, at two locations in Dublin, and Kilkenny, and, subsequently, in London. It transpired very late in the day, referring back to some remarks which I made previously to the Committee, that the retailing activity was running into serious difficulties, as a result of which serious losses were arising. This led in the course of 1987 to a reappraisal of the operations of the KDW by their board. This reappraisal threw up for the first time the serious difficulties of the retailing sector and this, in turn, led to the decisions that were taken in the course of 1988, regarding termination of the retailing activity in London in particular.

Chairman.—Were the company ever profitable?

Mr. Donlon.—Yes, the company were profitable for a limited period in the early stages. Certainly they were profitable on and off up to the early eighties. They then embarked upon certain investment programmes and expansion of the retailing activity.

Chairman.—In 1974 the Minister for Industry and Commerce took over the shareholding directly. Did your Department at that stage get involved in the supervision of the company or in monitoring the progress of the company? Are you happy that your Department discharged their responsibilities reasonably well? I can accept that a commercial enterprise cannot be interfered with on a day-to-day basis but, in so far as supervision would be reasonably expected to be carried out by your Department, was it carried out?

Mr. Donlon.—Yes, I would say that it was. The Chairman may recall that on a previous appearance before the Committee he asked me about the future prospects of KDW. I indicated at that time that it was the view of the board of the company that the organisation, including their retail operations, could become self sufficient within the stated period. At that time I might also have mentioned that we did not actually have accounts for the most recent financial period. Those accounts did show that substantial losses were being incurred. Obviously, we did not have such information available to us until such time as the accounts were made available, but, in the normal course, the monitoring and supervision or contact with that agency, as with others, would have continued. There was no reason to believe that there was anything wrong with the level of supervision. As the Chairman has acknowledged they were a company who were operating within certain guidelines and there could not be any question of our becoming immediately involved in their day to day commercial activities.

Chairman.—What about the liquidation? Are you satisfied that that was the right course at the end of the day? When the State were in so deep would it not have been better to let the company trade? Was liquidation the right decision?

Mr. Donlon.—We believe that it was the correct decision as the operation was then structured. The liquidation occurred in the case of the Irish Design Centre, the subsidiary operating the London operation. The Irish operation, or the KDW operation as such, is being wound down. It appeared that there was no prospect of a return to solvency or profitable trading in the retail operations. It was accordingly decided that the retail operations in this country should be put up for sale. As a prerequisite to that, the retail operation, which was operated under a subsidiary of KDW, Irish Design Centre, was terminated in London. In disposing of the retail operations here great care was taken to ensure that there would still be a facility available for the sale of the type of Irish product which was being undertaken at that time by KDW. We are convinced that the operations which have succeeded the KDW operations have very much maintained a vehicle through which Irish products can continue to be sold. This is now being done with no charge whatsoever on the Exchequer and there is no fear of any demands arising in the future. In so far as the development of the design activity was concerned, first, the sale of the Kilkenny premises allowed for the location of the Irish Crafts Council within the premises, thereby allowing for the continued training or development of a design expertise. Secondly, the premises in Kilkenny are also being used for the sale of quality Irish products once again and, thirdly, there are a number of designers who were formerly in the employ of KDW who are continuing within the premises in Kilkenny to offer to the public the benefit of their expertise and services by way of sales of product. In effect, the objective of the retailing end, with the exception of the UK, of providing a show piece for Irish quality products, and creating an outlet for the sale of those products, is being continued by the present operations without any recourse to subvention.

Chairman.—That is outside of State control?

Mr. Donlon.—Yes, outside of State control.

Chairman.—And is there no way that that could have continued as a profit-making operation within State control?

Mr. Donlon.—Empirical evidence would have suggested that it was not possible. Efforts were made in the latter years to establish whether or not it could be continued and whether or not a profitable stage could be reached. We were not satisfied that that could have been the case. We were convinced that the winding down of the operation would be in the best interests of the State as a whole.

Deputy Cullimore.—Could you provide us with the sales figures for Irish Design Centre Limited, from 1986 and also the corresponding overheads, if possible, for that period?

Mr. Donlon.—I do not have the accounts for trading by Irish Design Centre. I do not know if the Comptroller and Auditor General might be able to help.

Mr. McDonnell.—I want to emphasise that these accounts are unaudited accounts because the Irish design Centre was set up in about November 1986 and they had run into difficulties before auditors were appointed. I can give the Committee the figures for the 13 months to 31 December 1987 and then for the year 1988. In the 13 months to 31 December 1987 — and these figures are sterling — the sales were just under £700,000-£699,000. The cost of sales was about £377,000, giving a gross profit of £323,000. When one takes the salaries, travel and other expenses into account, which came to £828,000, one finishes with a loss for that period in sterling of just over £500,000. The corresponding figures for 1988 are, sales of just over £400,000 and cost of sales the same leaving virtually no gross profit. When one takes the expenses and overheads into account, which came to £623,000, are finishes with a loss for that year of £623,000 sterling. The loss for the total period of just over two years comes to £1.1 million sterling.

Deputy Cullimore.—May I check those figures again with Mr. McDonnell sales amounted to £700,000?

Mr. McDonnell.—Yes.

Deputy Cullimore.—For the first year?

Chairman.—13 months, I think.

Deputy Cullimore.—Yes, and the overheads were?

Mr. McDonnell.—Cost of sales, in other words, the cost of their purchasing values, was £376,000 and overheads were £828,000, which leaves a loss of £500,000.

Deputy Cullimore.—Mr. Donlon, would you accept that the sales were quite satisfactory but that the overheads incurred were very unsatisfactory in proportion to the sales? Were the negotiations conducted properly bearing in mind that there were overheads of £829,000.

Mr. Donlon.—The sales figures, while it might appear in itself to be satisfactory, was not regarded as being such and was accepted by KDW, Irish Design Centre, and by consultants who looked at it, as not being satisfactory. The problem was attributed to a wrong product mix as a result of which efforts were made to get that right but, unfortunately, time had slipped by to too great an extent to allow for any significant remedial action. I would acknowledge that the initial overheads, the question of the renovations to the premises and so on did lead to the creation of a substantial burden, but having accepted that ab initio there was no way in which the development of sales could in any way be seen to reach a level which would have enabled them to operate on a profitable basis.

Deputy Cullimore.—Would you agree, Mr. Donlon, that very few business enterprises in the private sector could ever succeed if they were to incur overheads of £829,000 and had sales of £700,000? Surely form the start it was not on to incur £829,000 worth of expenses.

Mr. Donlon.—It was believed that it would have been on at the time by the board of KDW otherwise they would not have proceeded with it. I accept that an overgearing position in regard to any private enterprise would be critical in so far as their prospects for survival would be concerned. Perhaps, in many instances that is why we have seen the closure of so many different companies.

Deputy Cullimore.—At a later date would it be possible to furnish us with a breakdown of the overhead expenses incurred of £829,000?

Mr. Donlon.—If that can be done, we will do so.

Chairman.—The Comptroller and Auditor General has the breakdown of the overheads which he might make available.

Mr. McDonnell.—I also want to say in relation to my previous remarks that Members should realise in comparing the figures there, that the 1988 figures are significantly smaller in all respects, sales costs, etc., but they must remember that the company went into liquidation in May 1988 so they would not have been trading for part of the year. To go back to your question, Chairman, do you want me to run down through the overheads or to take the main items? For instance salaries and wages in the first 13 months were £153,000, rent and rates were £365,000; promotion was £80,000; interest was £51,000; travel was £68,000; stationery was £35,000; legal fees were £13,000; depreciation was £20,000; sundries were £23,000 and a few other small amounts all of which make up the £828,000. Does the Deputy want any other figures?

Deputy Cullimore.—No.

Deputy Connor.—Mr. Donlon, I know you have been touching on this but could you give us a brief analysis in so far as you Department are concerned, as to why the company failed? What was wrong with their trading? You talked about the wrong mix of products but were there other factors to the failure?

Mr. Donlon.—First of all, I wish to refer back briefly to a point I made earlier that it was never envisaged, as recently as 1986 when the national Development Corporation legislation was passed, that KDW up to that time would be a commercial operation returning profits, and soon. It was decided around the mid-eighties, on the basis of the advice from KDW, that they should be able, by virtue of a mix of their continuing design advisory activity and retailing, to reach a self-sufficiency level, if not profitmaking level. The indications that we have had, in so far as the London operation was concerned, which was the critical operation and that which brought everything to light in the first instance, was that it was specifically a product mix which was wrong.

As I mentioned, efforts to redress that could not have been effective or successful, given the amount of water which had passed under the bridge at that stage. The effect of the losses arising there, and also the marginal success of the retail operations here, were such as to cause great and significant financial problems for the company as a whole. The product mix in Dublin, on the basis that it is now being continued in a somewhat similar vein, must have been there or thereabouts. The question, perhaps, of manner of sales and other overheads would be factors, but the reality is that the collapse of the London operation was such as to be practically terminal for the KDW operation as we then knew it. One could never have envisaged KDW continuing their then operations here without some substantial further investment by the State, and one could never guarantee that there would not be further demands made at a later time.

Deputy Connor.—In relation to the disposal of the assets, given the overheads the company ran, and the value of their total sales, it would appear that the property, which everybody here knows quite well, did not realise an enormous amount of money, £605,000, given property values in Dublin, its location and so on. Will you comment on that?

Mr. Donlon.—The property did actually realise close to its book value. It may be that it could have realised more. As I mentioned earlier, the determination on the part of the Government was to ensure that there would continue to be a facility for the sale of quality Irish products of the type then on sale from those premises. It was part of the tender operation that this particular activity be continued. One could imagine that if one was inviting tenders on the basis of an open house, there might have been more significant bids. There was a determination to ensure that this kind of activity would be continued. Likewise, in the disposal of the premises in Kilkenny, it would have carried a particular valuation, but were sold at a price which was less than that. The consideration that was uppermost in the disposal of that activity arose in a number of areas. Firstly, there was the continuation of a retailing operation; secondly, the making available or the continuation of a design-training facility; thirdly, the making available of a facility which would enable individual crafts’ people to dispose of their wares; and fourthly, the premises in Kilkenny were regarded as being an integral part of the tourism feature of the area, being particularly close to Kilkenny Castle. All of these issues and concerns were brought to bear in deciding that the price, which was eventually tendered should be accepted. There were undertakings to continue these activities.

Deputy Connor.—You are satisfied—leaving aside the Kilkenny property because it went to a civic trust and the local authority and others were involved—in relation to the Dublin property that with all the strings attached to the person purchasing, the very best price was realised for that property?

Mr. Donlon.—As I understand it the sale was affected by KDW and the tender which was accepted was the best tender. It was the board of KDW which effected the sale.

Chairman.—Before Deputy Taylor comes in I have to be in the House for about 20 minutes on an Estimate. Deputy Connor will take the Chair until I come back.

Deputy Taylor.—Mr. Donlon, I was going to ask you in what manner and for how long is it secured that the Dublin premises will continue to be used as an outlet for Irish quality goods?

Mr. Donlon.—Sorry Deputy, I cannot be precise on this, but my understanding is that the lease, which was actually sold, has a further period of something like 20 years. I would like to confirm that position to you.

Deputy Taylor.—Was the sale carried out by way of the sale of the lease?

Mr. Donlon.—Yes, it was the sale of the leasehold interest.

Deputy Taylor.—Was there a clause in the new lease that was granted that would secure this?

Mr. Donlon.—The terms of the contract required that this particular activity would be continued by the purchaser.

Deputy Taylor.—For how long?

Mr. Donlon.—My best recollection is that it would be for a period of up to 20 years. I would like to be more precise on it and, if I could, I would like to return to you on that point.

Acting Chairman..—I should like to ask Mr. Donlon to send a note on that to the Committee.

Deputy Taylor.—Was the Dublin operation successful?

Mr. Donlon.—The Dublin operation over a period fluctuated as between profits and losses. On average, one would have to say that it was a marginal operation over the period.

Deputy Taylor.—Why was it not possible to keep on the Dublin operation if the London operation was the cause of the problem? I imagine that this was dealt with before I came in, but I often wondered about that.

Mr. Donlon.—The impact of the London operation on the financial structure of the company as a whole was such that it would not have been possible to continue the Dublin operation without further substantial injections of funding into the company. If that was done there was, obviously, no guarantee that it might not be required at later dates as well. It was decided, at the end of the day, that the most effective method of operation, ensuring that we would still have this facility, would be by way of disposal as it was done.

Deputy Taylor.—I do not know whether I would necessarily agree that that was the most effective way, because you are reliant on some private company which is profit motivated to do it. They will do it as long as it suits them or whatever. I am not quite clear as to why the Dublin operation had to be sacrificed because the London operation failed. Could a scheme not have been devised to have off the Dublin operation to a separate company and allow it continue, thereby divorcing the Dublin operation from the loss-making London operation? Was that considered?

Mr. Donlon.—In considering how best to provide for a continuation of an outlet of this kind, all options were considered. At the end of the day the View was that the less costly and the more attractive proposition was that which was embarked upon.

Deputy Taylor.—It is not a question of its being attractive, it is a question of its being in the interests of the taxpayer. What was the objection? The Dublin operation by and large was all right, it had its ups and downs but it was doing all right, Had there been nothing in the KDW operation but the Dublin operation no problem would have arisen. If one accepts that the problem was London and that there was no problem with Dublin, why could a separate company not have been set up and, by a bookeeping transaction, have the Dublin operation hived off to that separate company so that they would continue to operate on their own without being dragged down into the mire by the London operation? That would have retained a very fine facility provided by public funds in public ownership and enabled it to continue on. What was the objection to proceeding along those lines?

Mr. Donlon.—It would have been very difficult to hive off or turn your back and forget that the London operation did exist. The impact of the difficulties in London were quite significant in so far as the group were concerned. It was further decided that the venture, which had only been going on for a short number of years, was not generally a successful venture in so far as KDW were concerned.

Deputy Taylor.—I accept that, and I understand all that. I accept that the London operation was not successful. What became of that? Was it liquidated eventually?

Mr. Donlon.—The London operation is in liquidation.

Deputy Taylor.—What was to stop the Dublin operation being transferred into a separate company on an arms’ length basis, or whatever its net value was, and the remaining shell, which would have consisted of the London operation, being liquidated as it was? That would have left the Dublin operation as a reasonably successful company, fulfilling the function which it was designed to fulfil, that is, the promotion of quality Irish products as a semi-State company and being allowed to continue on rather than being hived off at less than its value to private people. What was the great objection, what was wrong with doing that, or was it seriously considered? Would that not have been much more satisfactory from the taxpayers’ point of view?

Mr. Donlon.—In fact, what did occur was that the Dublin retail operation was sold off on an arms’ length basis, with the exception of the restrictions which were imposed. As a result the proceeds of that sale went into KDW as it then stood.

Deputy Taylor.—We are going around in circles but I am still not satisfied that there is any clear answer being given. The nub of this is that it seems that the Dublin operation was sold off to private enterprise at less than its value. A condition was put in, but the private enterprise source would not have taken it over unless it was a good commercial bet. I deeply regret that that facility which was doing well has been lost as a semi-State enteprise. I wonder why the London operation was not given over to a separate subsidiary in the first place. That is a separate matter and I will ask Mr. Donlon about that in a moment. It seems to me that it would have been prudent planning rather than having the two operations in the one company, to have had the London one in a separate company so that it could have been dealt with separately. Even it was not, when difficulty struck at London I do not see why, instead of transferring the Dublin operation to private enterprise, it was not transferred to a new semi-State separate company to continue on on its own by an arms’ length transfer and liquidate the unsuccessful London operation. I cannot see that Mr. Donlon has given any clearcut satisfactory answer to that question.

Acting Chairman.—Mr. Donlon, at the time when the trouble was identified certain decisions had to be taken as between the board of Kilkenny Design Workshops and your Department and you might be able to let us know how at that crucial stage of the decision-making process the problem was to be tackled, for example, the disposal of the assets and so on. We are looking at the decision-making process, at who made these crucial decisions. Was it left to the board of Kilkenny Design Workshops? To what extent had the Department or the Government an input into the decision?

Mr. Donlon.—First, the London operation operated under Irish Design Centre which was a subsidiary of KDW, which is what Deputy Taylor was inquiring about. It was a separate subsidiary from the KDW operation.

Deputy Taylor.—A separate subsidiary company? That is very interesting. If that is so, why was it not just liquidated? If you liquidate a subsidiary company it does not mean that you have to throw up your hands in horror and get rid of an operation that is doing a good job, and doing the job it was intended to do, and hive it off at a loss to private enterprise. If it was a separate company that would have been the prudent thing to do. The reason one would do it that way would be to provide for such an eventuality. It is a separate company, so it can be liquidated.

Mr. Donlon.—I agree generally with the thesis, but in so far as the subsidiary company were concerned KDW had guaranteed certain borrowings etc. by the Irish Design Centre. Taking those, together with the amounts due by the Irish Design Centre to KDW, we were talking in terms of an amount just short of £1 million. Notwithstanding the fact that it was a subsidiary company, it had quite a significant impact upon KDW.

Deputy Taylor.—Would you not agree that the fact that KDW had given guarantees is neither here nor there in the thesis that I am making for the obvious reason that whatever they did, whether they sold it off to private enterprise or kept on the Dublin operation, they would have had to meet their guarantees. That is neither here nor there, even in the events which happened. If they had given guarantees presumably they would have had to meet those guarantees.

Mr. Donlon.—I accept that the guarantees were going to have to be met.

Deputy Taylor.—One way or the other?

Mr. Donlon.—One way or the other. The question which the Deputy poses is, why go for a private disposal rather than continue to operate? The basic decision taken was that KDW should discontinue their retailing operations and that the operations of the company should be wound down.

Deputy Taylor.—I suppose in a sense we are getting into the area of policy at this point. The reason for my line of questioning of Mr. Donlon was to find out if there was any commercial necessity in the policy decision that was taken. It may be that the policy decision was taken based on the needs of commercial necessity or commercial pressure. It must now seem clear that there was no commercial pressure or necessity to proceed along the course that was adopted. I, and my party, would accept that it was policy for which Mr. Donlon is not accountable but we say it was a bad, mistaken and regrettable policy. That is my view.

Deputy Dennehy.—It is obvious that there are differences of opinion on how we should run the country. I do not think we need delay everybody by putting that on the record.

Deputy Taylor.—On principle if public assets are sold off at less than their full true value it raises a serious question mark for this Committee.

Deputy Dennehy.—I think we should put on the record the qualifying factors that were put in, the covenants, the restrictions, which ensured that we would have a facility for the future. They must be taken as part of the real value of what was sold and must be taken as part of the income. We have a guarantee for the future of an outlet. That should be mentioned. Very few mistakes were made in that period and that should also be put on the record.

Acting Chairman.—We will take all your comments. We move on to paragraph 51 which relates to export guarantee arrangements under the Insurance Act, 1953.

Paragraph 51 of the Report of the Comptroller and Auditor General reads:

Subhead 0.1—Export Guarantee Arrangements under the Insurance Act, 1953 (as amended)

Subhead T—Appropriations in Aid—Export Guarantee Premiums and Fees under the Insurance Act, 1953 (as amended)

I referred in previous reports to the export credit insurance scheme administered by the Insurance Corporation of Ireland (ICI) on behalf of the Minister for Industry and Commerce to provide insurance cover to exporters against the risk of default in payment for goods exported by them on credit terms. The risk covered is normally 90% of contract value for commercial risks and 95% for political risks, although for certain high risk markets the extent of cover may be reduced to 70% of contract value.

Insurance cover may be provided either by way of a comprehensive policy or a specific policy. A comprehensive policy applies to all or a significant proportion of an exporter’s business and would normally involve an exporter dealing with a large number of buyers in several markets and selling on short term credit. A specific policy applies to individual one-off type contracts, typically involving capital goods exported to a single market on medium term credit of up to 5 years.

In line with normal underwriting practice the degree and conditions of cover are determined by market conditions in the buyer country, by the buyer’s creditworthiness and by the terms of the contract being insured. There are certain markets which involve a higher degree of risk than would, under normal insurance criteria, be deemed commercially insurable but which because of their strategic importance for Ireland have been designated “national interest” markets. Insurance cover for such markets is provided on the basis of terms and conditions which are approved by the Minister in each case.

The Insurance (Export Guarantees) Act, 1988 increased to £500m the limit of liabilities which the Minister may have on cover under all policies in force at any one time. The liability covered varies from day to day depending on dates of shipment of goods and the ongoing payment of accounts. According to information furnished to the Department by ICI the maximum liability at 30 June 1989 was £259m of which £118m related to “national interest” policies including £107m in respect of exports to Iraq. At that date some £60m was overdue on foot of the Iraqi contracts.

The agreement between the Minister and ICI provides that in order to meet its administration expenses and provide an agreed profit margin, the company may retain an agreed proportion of premiums collected. The amount retained by ICI in 1988 was £850,000 including £182,000 commission paid by it to insurance brokers. The agreement also provides that ICI shall endeavour to ensure that, taking one year with another, the export credit insurance scheme shall involve no net loss to State funds. However, at 30 June 1989 there was a cumulative deficit of £8.25m based on premiums received and claims paid up to that date but not providing for future claims or recoveries.

Mr. McDonnell.—As the committee will recall, I have in my report for a number of previous years drawn attention to various aspects of this export guarantee arrangement made under the 1953 Act. I did this because in the event of things going wrong the State bears the ultimate responsibility for liabilities which cannot be met from premium income. You will also recall discussing at a previous meeting the arrangements between the Minister and the agent, the Insurance Corporation of Ireland, which provide that ICI would endeavour to ensure that the export credit insurance scheme breaks even. It has been clear for some time now that, no matter how you account for the figures — if you take it on a cashflow basis or an accrual basis with provisions and so on — there is a cumulative deficit on the scheme. One can come up with various figures on a cash basis or an accrual basis but the difficulty is finding out what exactly the deficit is.

At the end of the fourth paragraph you will see that I give figures on the maximum liability of the Minister at 30 June 1989, that is on foot of insurance policies written at that stage. As a result of the Minister’s subsequent decision to void certain policies — that happened subsequent to the date of my report — those figures would need to be restated. Finally, I want to say, because I referred to the Iraqi contracts and the national interest policies, I understand that, although there is a significant amount overdue to Irish exporters from Iraq, the State has not, in fact, had to issue any money on foot of those contracts.

Acting Chairman.—We note in your report reference is made to the export credit insurance scheme in relation to the following matters: special loan arrangements with a Nigerian company which defaulted and default payment by two Sudanese Government Ministers. Can you inform the Committee of the progress in relation to the Nigerian case referred to in the report?

Mr. McDonnell.—With respect, what you are referring to there is the Committee’s own report which was the follow up to the various comments that I made in my reports of previous years. They were the aspects which I referred to, the Nigerian and Sudanese contracts and so on. I have not got up to date information about that; the Accounting Officer may have.

Acting Chairman.—We will ask Mr. Donlon if he can comment on the report in relation to the Nigerian and Sudanese cases.

Mr. Donlon.—The Nigerian case, to which you refer, related to a question of debts of approximately £2.5 million which were outstanding from Nigeria for produce exported in the early eighties. Five claims, amounting to $3.7 million, were lodged with the Nigerian Central Bank in 1984, but only two of the claims were accepted under a promissory note which was issued in March 1988 covering principal debts of $864,000. The promissory note issued is being honoured and we have received payments of £85,000 to date. However, the terms under the promissory note involve a very extended repayment period of 22 years. I think I can say also that, at a recent meeting between departmental officials and the purchaser in Nigeria, the purchaser reaffirmed his willingness to reach a bilateral settlement of the three remaining claims, valued at £2.8 million, for which no promissory notes were issued by the Nigerian Central Bank. A proposal has been sent to the purchaser and it is intended to meet with him again shortly to negotiate settlement of the outstanding debt. It is likely, though, that there will have to be some discounting on the debt as it now stands. The indications, by virtue of contact with the purchaser, are that there is a willingness on his part to settle. In so far as the Sudan contract is concerned, unfortunately the situation has not really changed since I last spoke on this issue before the Committee. The reality is that we cannot at this stage certainly expect that there will be any payment coming from Sudan. If one were in the business of writing off one would, perhaps, be talking in terms of writing off this amount.

Acting Chairman.—Has the insurance on exports to Sudan been excluded now?

Mr. Donlon.—Yes, and Nigeria.

Acting Chairman.—Any other countries?

Mr. Donlon.—I do not have a list with me but there is a list of countries who are off cover in so far as the export credit insurance scheme is concerned.

Acting Chairman.—Does that include Iraq?

Mr. Donlon.—In the sense that Iraq is off cover at this stage, yes.

Acting Chairman.—This cover by and large extends to meat exports. What other exports would it cover?

Mr. Donlon.—It would be right across the spectrum of industrial activity and service activity. You would have it on electronics, engineering and the food sector. As far as I know there are thousands and thousands of products which would be covered at any one time by export credit insurance.

Acting Chairman.—Not all of them fall into the category which is referred to as exports in the national interest?

Mr. Donlon.—No, not all of them. It is a restricted list of national interest accounts where, for reasons which are unrelated to commercial risk, decisions are taken that in the national interest it would be beneficial to supply products to a particular market. It would be only in those instances where national account would be used.

Acting Chairman.—A final question, can you give us an idea now of the net losses arising from the operation of the scheme?

Mr. Donlon.—As the Comptroller and Auditor General mentioned, there is a cumulative deficit on the scheme at this time in excess of £9 million. There are a couple of comments that I would like to make on that. First, the deficit is something which is influenced not just by claims against the scheme but also by premium income. Secondly, included in the figure of £9 million, which is a netting off figure, would be moneys which are tied up in what are referred to as currency pipelines. For instance, to refer back briefly to Nigeria, you would have had a situation there, and in other countries where losses have been incurred, where the actual purchaser of the item or product in question may have been in a position to pay. He would have been in possession of local currency but his access to international currency would have been restricted, if it existed at all. There is a figure of the order of about £8 million which could be described as amounts held up in currency exchange pipelines. In some of those cases clearly the hope of ever getting our money back would be very slim. In other cases, such as in the case of Nigeria where we have rescheduling arrangements of one kind or another in place, we would expect to get losses incurred back. I would like to make a final comment about the cumulative deficit. It is, in fact, less than .2 per cent of the total export turnover insured under the scheme to date, which is roughly of the order of about £5 billion.

Acting Chairman.—Could I ask the Comptroller and Auditor General, if all outstanding transactions or annual accounts under the export credit insurance scheme have been audited and if there has been a timely submission of all annual accounts to his office?

Mr. McDonnell.—Yes. You will recall that this was a problem we had previously. The legislation requires that an account of the transactions be submitted to me for audit. We had some problems and delays in connection with the accounts, but I can tell the Committee that we have now cleared the accounts up to date.

Deputy Taylor.—Mr. Donlon, I recall that your Minister, before he was Minister, made a number of very strong speeches in the Dáil and, possibly, outside, highly critical of this scheme. One of his criticisms, if I remember rightly, was that the benefits of the scheme were being given to a very small number of exporters, or, possibly largely just to one exporter. Was there any basis for that criticism? How many exporters were involved? What was he on about?

Mr. Donlon.—May I inquire if the Deputy is speaking about particular years of transactions or about the scheme in general?

Deputy Taylor.—About beef and the Iraqi situation.

Mr. Donlon.—I regret, Deputy and Acting Chairman, that I am not in a position to deal with any questions on this issue. As the Committee will be aware, the particular issue which the Deputy has raised is a matter which is the subject of legal proceedings. I have sought and obtained advice on this issue and am advised that I should not engage in discussion on matters which could relate to this particular activity.

Acting Chairman.—That is accepted.

Deputy Taylor.—I was going to ask you, Mr. Donlon, about the legal proceedings. When you said that to date there has been no actual out of pocket loss to the State, is that attributable to the fact that certain of these essential guarantees were voided by the Minister and that that voiding is now the subject of legal proceedings? Is that the position?

Mr. Donlon.—In fact, it was the Comptroller and Auditor General who mentioned that no claims had arisen from this activity.

Deputy Taylor.—Right.

Mr. Donlon.—We have not had any claims against the scheme in so far as the generality of the business done in Iraq is concerned.

Deputy Taylor.—What exactly is the legal position? Who is the claimant in the legal proceedings? In other words, who is the plaintiff who has sued the Minister and the State?

Mr. Donlon.—The Deputy is aware that certain decisions were taken in October 1989 voiding policies. One of the companies holding one of those policies has initiated legal proceedings against the Minister at this time.

Deputy Taylor.—Which company? There is nothing confidential about that; it is in the law list.

Mr. Donlon.—We have not named the companies. It has not been the practice to name persons who have been in possession of export credit policies. The name of the company which has initiated the action is generally known.

Deputy Taylor.—That is the Goodman Company?

Mr. Donlon.—I have no reason to disagree with what the Deputy is saying.

Deputy Taylor.—Could I ask you at what stage these legal proceedings are now?

Mr. Donlon.—As the Deputy is aware, a writ was originally issued within a day of the communication of the Minister’s decision in the matter. Since then we have had a statement of claim presented by the plaintiffs. We have responded to that and a statement of defence has been lodged on behalf of the Minister.

Deputy Taylor.—So the defence has been filed?

Mr. Donlon.—The defence has been filed, yes.

Deputy Taylor.—How much is at stake in these legal proceedings? If — and it is only hypothetical — it was to go wrong, what is the exposure position here?

Mr. Donlon.—It is difficult to say. In the nature of court actions there will be a claim for damages, unspecified, and this case does not differ from the norm.

Acting Chairman.—In case we go too close to the area of offending the sub judice rule, we should be careful.

Deputy Taylor.—I do not think that we are yet. I am not getting into the merits or demerits of the case. I just want to find out what the possible exposure is.

Acting Chairman.—My fear is that we might be getting into the details of the case that may be prejudicial, one way or the other.

Deputy Taylor.—What the claim is, is public property. When a claim is made, what is being claimed, in other words? I do not think there is anything unduly difficult about that. We are entitled to know what is being claimed against us. Is he claiming £10 million or £110 million? That is not conceding that he has any right to the claim whatsoever. I make no comment on that; I could not. I do not know enough about the case to be able to do that. We are entitled to know what he is claiming. Claiming is one thing and getting it is another.

Acting Chairman.—Do you feel free to comment on that, Mr. Donlon?

Mr. Donlon.—Whether usefully or not is another story. The proceedings have been initiated against the Minister on the basis of decisions which he took. The question of amounts of money to the best of my knowledge are not mentioned in the statement of claim.

Deputy Taylor—Not specifically.

Mr. Donlon.—There is the standard reference to damages in the event of a successful plea by the plaintiff of loss by the State.

Deputy Taylor.—I understand. Approximately how many policies did the Minister void? What was their approximate value?

Mr. Donlon.—Unfortunately, I find great difficulty in answering that without straying into an area where I am advised I should not become involved in discussion.

Deputy G. Mitchell in the Chair.

Deputy Taylor.—It seems to me to be within the ambit of the activities of the Committee, and the Minister’s activities. Here are policies of insurance on which the State has an exposure. The Minister voids certain policies and it seems to me that the Committee can reasonably ask how many policies of insurance the Minister voided and how much was guaranteed on the policies he voided. Is that a reasonable question, Chairman?

Chairman.—Mr. Donlon, the Committee do not want in any way to pre-empt any matter which may be before the courts, but the Committee do not want the courts to preempt Parliament. I think you should provide any information which is not going to compromise the case before the courts. If it is, perhaps you would explain how that is the case. I have not been here for the whole of this examination so, perhaps, you would like to respond to that.

Mr. Donlon.—Chairman, I am actually doing my best to respond where I can to questions which are being asked. As I mentioned at the outset, I did seek and obtained advice to the effect that I should not engage essentially in any discussion on this issue lest such discussion gives rise to a number of sets of circumstances which could be prejudicial in one way or another to the conduct of the proceedings. For that reason I feel constrained in getting into areas of liability, etc.

Deputy Taylor.—There is no question of going into the matter of liability — I would not know enough about it to do that. The number of policies that the Minister voided is a matter of fact. It may have been one, five or ten. I do not see how saying that the Minister voided ten policies, if that is what he did, can possibly prejudice anything. It is just a simple basic fact. He voided a number of policies and all I want to know is how many, what was the money involved and the policies he voided? That again is a matter of fact; it does not prejudice or influence anything. That is the way it would strike me but maybe I am wrong.

Mr. Donlon.—The Deputy is aware that there were two companies involved. In the ordinary course companies seeking cover for a particular transaction would be in receipt of one insurance policy. Beyond that I do not think I can go at this stage.

Deputy Taylor.—Is the Chairman happy with that information?

Chairman.—We have a certain difficulty here. I take the very strong view that your position as Accounting Officer, Mr. Donlon, is to account to this Committee, not as Secretary of the Department but as Accounting Officer, which is how you are introduced here. You have got a statutory responsibility to account. The Committee do not want to do anything that would prejudice any case that is before the courts, but I do think it is a reasonable request from the Deputy for information. We are making a bit of a mountain out of a molehill. I do not think the information the Deputy is seeking would be prejudicial to your case, but if it is, perhaps you will tell us how it is prejudicial to your case if such information is supplied.

Mr. Donlon.—Unfortunately, Deputy, it is my view that something might be prejudicial. I can only form an opinion.

Chairman.—Mr. Donlon, we have to have confidence in you, as Accounting Officer, and we have to know that you are fulfilling your duties in reporting to this Committee, as the House requires you. We could have people coming in here, day in, day out, telling us that this matter is before the courts or whatever, that they have taken advice on this and so on and we would never get anywhere. What is the difficulty?

Mr. Donlon.—I do not agree that my attitude has been one of that nature.

Chairman.—I am not suggesting it is but I am saying it could happen if we were to — not in your case — in general allow this procedure to be used.

Mr. Donlon.—I will not comment generally nor, indeed, on the position of the Committee. All I can deal with is my own position. There are two elements. Firstly, I am speaking here as Accounting Officer; I am not speaking as anyone’s representative or anything else. It was I who sought the advice of the Attorney General and it is on that advice that I am acting at this time.

Chairman.—We will have to make something of this now, Mr. Donlon, because the Attorney General advises the Government. In Britain the Attorney General is a member of Parliament and advises Parliament. You are here to account to Parliament. We are heading for a serious problem here and the sooner it is brought to a head the better, if this is the way we are going to go. If you are asked for very basic information I do not think you should make a mountain out of a molehill. I think that information should be provided, or else we will have to halt these proceedings and see how else we can approach the matter. I really do not think that to ask the number of cases or the amount, or to ask for information of that kind, will affect your case, but, if it will, perhaps you will point out how it is going to affect it.

Mr. Donlon.—First, on my own position, Chairman, there are two issues involved. First, there is the question of guidelines which are available to civil servants appearing before committees, and they are quite explicit.

Chairman.—No, Sir, your guidelines are outlined in the outline for financial procedures. They are the only guidelines which deal with your appearance here as an Accounting Officer. You should know that. I do not want to hear about any other guidelines which were laid down for the Public Expenditure Committee or anything else. The guidelines which operate for this Committee have operated since 1922 and this Committee are quite authoritative on them; we have been seeking to reform them. They are the guidelines under which you operate and they are outlined in the financial procedures, which are circulated by the Minister for Finance, and you should know that Mr. Donlon.

Mr. Donlon.—I actually sought to confirm that the guidelines which are there did actually apply to me in this particular instance. I accept what you are saying, Chairman, I accept your view about the appearance of civil servants before the Committee of Public Accounts. That was one element and the second element is that which I have already referred to, that of obtaining advice. The advice, which I received, was that discussion of the issues which are subject to proceedings were matters on which I would have to plead sub judice for a number of reasons. Notwithstanding that, I am endeavouring to answer such questions as I feel I can which might not prejudice issues which are arising. On the questions which I have been asked, there were a number of policies issued. I mentioned that there were two companies involved and in the ordinary course there would be one policy covering each company.

Chairman.—One policy each?

Mr. Donlon.—In the ordinary course that would be the case. The second point was the question of the amount involved. I will try to answer that question without raising any question whatsoever about liability. The contract value in respect of which the policies were issued was of the order of £120 million.

Deputy Taylor.—Why could that not have been said in the first place? That is all I was trying to get. I do not know why it has to be dragged out. The Chairman is quite right, the thing is going to extremes. I do not think that information prejudices anything; fact is fact. In any case in so far as it is relevant it is discoverable in court on discovery of documents and so on.

Mr. Donlon.—Sorry, just to come back on that point, Deputy Taylor, with the Chair’s permission, what I did say was that the policies were issued in respect of contracts. I have not indicated what the insurance cover related to or the liability of the Minister.

Chairman.—That is the matter which is in dispute, the matter which the courts have been asked to adjudicate on presumably?

Deputy Taylor.—The contracts involved £120 million?

Mr. Donlon.—Roughly, yes.

Deputy Taylor.—The insurance is a different figure?

Mr. Donlon.—Yes.

Deputy Taylor.—The insurance should not be more than 90 per cent of that, if I read the statutory guidelines correctly? The insurance against the risk of default is to the extent of 90 per cent of the value of the goods exported on credit terms. Is that a statutory requirement, that 90 per cent?

Mr. Donlon.—In the ordinary course of the operation of the scheme there are levels of indemnity struck in different cases.

Deputy Taylor.—To a maximum of 90 per cent? That is what it says here. I am reading the paragraph which says that exporters may insure against the risk of default in payment for goods to the extent of 90 per cent of the value of the goods. Is that 90 per cent correct?

Mr. Donlon.—In the ordinary course we would never go over 90 per cent.

Deputy Taylor.—In the ordinary course of events you would never go over 90 per cent? May I ask the Comptroller and Auditor General where that 90 per cent figure comes from? Is that a statutory provision, a guideline or what?

Mr. McDonnell.—It is not statutory, Chairman, it is in the terms of the scheme, as I understand it. Ninety per cent is not a statutory figure.

Mr. Donlon.—It is in the operation of the scheme, it is an administrative procedure. The maximum cover in the ordinary course is 90 per cent. The level of cover can range downwards from that.

Deputy Taylor.—But it should not be more than 90 per cent, if the terms of the scheme were complied with?

Mr. Donlon.—Not in the ordinary course.

Deputy Taylor.—I accept that. On the question of the ICI involvement and the fact that ICI got into difficulties and so on, how does that affect the taxpayer and the Department’s position? Has the taxpayer got a problem because of the ICI difficulties? How does that affect the equation?

Mr. Donlon.—The operation of the export credit scheme within the ICI has not been affected in any way by the problems which affected the insurance company.

Deputy Taylor.—The primary guarantee is given by the ICI and if it ended up that the ICI owed money on foot of the guarantee then the State picks up the tab? Is that the modus operandi?

Mr. Donlon.—The ICI operate as the agent of the Minister.

Deputy Taylor.—I see.

Mr. Donlon.—They administer the scheme. Where they issue guarantees such guarantees are issued on behalf of the Minister and he indemnifies ICI against any claims arising.

Deputy Taylor.—Their role is purely an agency role?

Mr. Donlon.—Purely, yes.

Deputy Taylor.—Why did they retain £850,000? Why did they retain money? The sum of £182,000 was their commission apparently on doing these transactions. Is that right?

Mr. Donlon.—There is an agency fee which is intended to cover their administration costs.

Deputy Taylor.—That was £182,000 according to paragraph 51.

Chairman.—No, they retained £850,000 including £182,000 commission paid by it to insurance brokers.

Deputy Taylor.—I see. ICI’s commission in 1988 was £850,000. Is that right?

Mr. Donlon.—The commission returned in that period, yes. I should mention that there was a bulk payment made to ICI in the recent past in respect of an actual claim made by ICI to the Department referring to actual costs over a period, so it would be incorrect of me to say at this stage that the actual cost of operating the scheme by ICI in 1988 was the figure of £850,000. It would have been part of the bulk payment which would have related to that year also.

Deputy Taylor.—Was their commission calculated on a percentage basis?

Mr. Donlon.—Under the agreement between ICI and the Department their commission is on a percentage basis.

Deputy Taylor.—What percentage was that?

Mr. Donlon.—It was 20 per cent in the course of ordinary business; in the case of national interest business, 5 per cent.

Deputy Taylor.—Sorry, 20 per cent in the case of what?

Mr. Donlon.—A deduction of 20 per cent of gross premium income is retained by ICI to recover administrative costs and there is a built-in profit element. In the case of business covered by ICI at the express direction of the Minister or the Department which specifically is the No. 2 or national interest account, a deduction of 5 per cent of gross premium income is retained to cover administrative costs.

Deputy Taylor.—Is 20 per cent not an extraordinarily high level of commission? A 5 per cent would seem more close to the knuckle, or on big amounts like this even less, but 20 per cent seems extraordinarly high, does it not? Maybe I am wrong.

Mr. Donlon.—It has not been regarded as being excessive. I should mention at this stage, because perhaps we are touching on an area which is part of an exercise which is being undertaken at the moment, that we had discussions on previous occasions about the method of accounting for this particular scheme, which point was raised in the Chairman’s absence. There have also been a number of other developments which have affected the operation of the scheme which we have considered are such as to warrant a full review of the operation of the export credit insurance scheme. At this time we are actually considering tenders from consultants to undertake a broad review of the operation of the export credit scheme. That will obviously get into such areas as commissions, accounting and so on.

Chairman.—I think to be fair to ICI, did they actually administer this scheme? They are not just an agent; they administer the scheme?

Mr. Donlon.—They administer the scheme practically fully. There are some constraints on their operations arising from the agency agreement that we have with them where in certain instances matters have to be referred to the Minister for decision, but for the greater part they administer the export credit insurance scheme on behalf of the Minister and have all of the attendant costs.

Deputy Taylor.—What company are now acting on behalf of the Minister in current and future business under the scheme?

Mr. Donlon.—As of today, the Insurance Corporation.

Deputy Taylor.—Still the same? There has been no change there?

Mr. Donlon.—No change at this stage.

Deputy Taylor.—Quite so. On this Iraq contracts matter, it says that at 30 June 1989 the amount overdue was £60 million. How long overdue was it—a month, three months or what?

Mr. Donlon.—Claims would arise in respect of different policies at different times. It would be difficult for me to say today for how long each element was overdue.

Deputy Taylor.—By and large, on payments from the Iraqi Government what is the kind of overdue period? How long do they default for normally, or what kind of periods are we talking about for which the Iraqi Government default?

Chairman.—We have spent quite a while on this. I am anxious to make progress.

Deputy Taylor.—It is important.

Mr. Donlon.—A claims waiting period is established under different policies. Our experience at the time was that payments coming from Iraq were at least six months overdue.

Deputy Taylor.—At least six months overdue. Can you assist the committee on the current figure? That was at 30 June 1989, a year ago. Have you anything more recent than that for the overdue amounts on Iraqi contracts?

Mr. Donlon.—I regret; I referred initially to the constraints which I consider exist for me. In so far as non-beef contracts are concerned in Iraq, a total liability in respect of £2.8 million arises on amounts overdue.

Deputy Taylor.—For non-beef contracts?

Mr. Donlon.—For non-beef, yes.

Deputy Taylor.—Are you saying then that you are aware of a more recent figure than that overdue on Iraq contracts but because of the case you are not in a position to give it? Is that what you are saying?

Mr. Donlon.—The figure I have given you is the figure in respect of non-beef contracts. I am not in a position to deal with the question of beef contracts because it is central to the whole question of liability, etc.

Deputy Taylor.—I do not follow that.

Mr. Donlon.—Sorry, I should have said beef contracts.

Deputy Taylor.—I do not follow the reasoning behind that either, I must admit. The amount that is overdue on Iraq contracts, is it disconnected? There may be insurances disputed or whatever in connection with it. If there is an overdue amount by Iraq it is an overdue amount by Iraq whether there are valid policies or whatever, or guarantees in force in connection with it. Is the matter in dispute before the court? What the overdue amount is, is a simple matter of fact. I would not think that that was appropriate for any avoidance by Mr. Donlon. That would be my view Chairman.

Mr. Donlon.—Deputy, at any one time I could never be in a position to give you a figure for amounts overdue from Iraq. The only information we would have would be amounts overdue in respect of which insurance policies had issued.

Deputy Dennehy.—First, I have an observation to make on earlier happenings here and the difficulty because I think it should be put on record. We totally support the Chairman’s views on the role of Accounting Officers coming in to give evidence. You did pass the comment that a mountain was being made out of a molehill as you more or less arrived back. At that stage two or three questions had been asked and I would question who was making a mountain out of a molehill. The answers to these were widely carried in the national media. Everybody was aware of the implications, the people involved and the cases involved. Yet, the Accounting Officer was being asked to give evidence here formally today as one of the people who will probably be called as a chief witness in this situation.

I thought it was a little unfair at that stage to take this on. I would question the need for asking these questions at the outset because although the case was widely published in a different context today Mr. Donlon could be in difficulty and we should accept that. I would question why we had to repeat that, as the information has been carried over the last number of months.

May I ask Mr. Donlon one question? There is a specific split obviously between the national interest policies as they are described and the remainder of the risk being carried. A sum of £141 million is being carried in relation to non-national interest policies. Why would the State carry this? What is the logic behind it? I would have expected that people in this area would take the normal commercial risks. What type of contracts are involved? What would be covered under the £141 million?

Mr. Donlon.—In respect of the national interest to which the Deputy refers, £107 million of that arises in the case of Iraq. The £259 million to which reference was made is the scheme as a whole. There is quite a significant difference between ordinary business and national interest business. Ordinary business, for the greater part, is where there would be a perceived commercial risk. You can have situations where there is more than a commercial risk. There can be many reasons why one would not engage in doing business. For instance, at the time in Iraq where there was a war situation, that is something which could not be described as commercial risk on its own. Obviously there is much more beyond that.

In the case of the national interest account, the justification for becoming involved in those areas is that a view is taken that, notwithstanding the particular difficulty which arises at a certain time, the market itself is seen to have prospects, that we have a product which we can supply to that market and the view is that those who can supply it should be facilitated in that supply. Obviously, one has to bear in mind that there is a significant and much greater risk than there would be in the ordinary course of business. In so far as the non-national interest account is concerned, the range of products being supplied and the range of markets to which products are being supplied would differ very greatly.

(Interruptions.)

Chairman.—I think Deputy Dennehy is entitled to the same courtesy.

Mr. Donlon.—In the ordinary course you do not have problems of that kind. The greater part of business in the ordinary course should be in the non-national interest account area. There are certain other issues, not just the commercial risk, which might make it attractive for companies to take out an insurance policy, such as access to cheaper finance to cover the export of those products, such finance being available, perhaps, from the banks on the basis of assignment of the policy or other instruments.

Deputy McGahon.—Mr. Donlon, you can confirm that Iraq has never defaulted?

Mr. Donlon.—The Comptroller in his opening remarks did say that no claims had arisen and I confirm the Comptroller’s view.

Deputy McGahon.—I want to ask three questions. When was the scheme started? How great a benefit has it been to Irish farming, given that we acquired markets we never had before? Why has this particular dispute arisen?

Mr. Donlon.—The scheme is in operation since 1953. It has been of tremendous benefit, obviously to the exporting community. As I mentioned earlier in the context of losses, business to the extent of £5 billion has been facilitated by virtue of the availability of export credit finance, of the export credit insurance scheme.

In so far as your question about the reasons why there is difficulty now, unfortunately, all of that is, again, the subject matter of the court proceedings. I regret I am unable to go into that.

Deputy McGahon.—You can confirm that the Irish farming community benefited to the extent of £5 billion since its inception?

Mr. Donlon.—Sorry, Deputy, the total business, which was facilitated by insurance. is of the order of £5 billion. I do not have a figure for the farming-related business which would have been facilitated.

Deputy McGahon.—Nevertheless, it would have been a tremendous benefit to the farming community. Would you agree?

Mr. Donlon.—Yes, to the extent that the farming community is making an input into products. The scheme has facilitated the export of products across the spectrum. It would include food, beef products, processed products, etc.

Deputy McGahon.—Taking it in its entirety, you would regard this export credit insurance scheme as being, on the whole, a success?

Mr. Donlon.—Yes.

Deputy McGahon.—Is it still in operation?

Mr. Donlon.—Yes.

Deputy McGahon.—Does it cover Northern Ireland?

Mr. Donlon.—Yes. As far as I am aware, exports to Northern Ireland, if cover is sought, would be available.

Deputy McGahon.—If I were to avail of this and enter into this particular scheme and I had a contract with a country and I did not have enough cattle to fill the order, I could use cattle from the North of Ireland and avail of the benefits of the scheme? Would I be covered?

Mr. Donlon.—I am very sorry but I think this is getting into an area which, perhaps, I should not cover.

Chairman.—Exporters from Northern Ireland cannot take advantage of this scheme, can they?

Mr. Donlon.—No.

Chairman.—Exports to Northern Ireland is what you meant when you replied. I think there is confusion there.

Mr. Donlon.—Yes.

Deputy McGahon.—On the whole, this particular scheme has been of very great benefit to the Irish farming community?

Mr. Donlon.—I would imagine it is. I do not have a figure of the volume of exports which have been facilitated in the farming-related area but it has been of benefit.

Chairman.—Can we conclude this examination at this stage. Mr. Donlon, when is this court case likely to be completed? Have you any idea? Will it be this year?

Mr. Donlon.—I do not know. As I mentioned to Deputy Taylor, the initial stages have been concluded in that a statement of claim has been made and the initial defence has been lodged. I imagine there will be a lot of papers passing to and fro.

Chairman.—Could I ask Mr. McDonnell, is it intended that this matter be reported on again on the audited accounts for 1989?

Mr. McDonnell.—I do not think there is any occasion to do so, Chairman. My report for 1989 is being formulated at the moment and there is no reference to the export credit insurance scheme in it.

Chairman.—In that case I would propose that we recall Mr. Donlon on this paragraph when the court case has been completed so that we can complete the examination, particularly in relation to the Iraqi business. We will note the rest of the paragraph.

Mr. McDonnell.—Could I say that all the material in regard to my report has not yet been co-ordinated and so on. While I am not aware of any aspects at the moment, aspects might come up in relation to the operation of the scheme.

Chairman.—In the event that there is not anything in the 1989 accounts, we will recall Mr. Donlon on this part of the 1988 accounts when the court case has been completed. We will note the rest of the paragraph for now.

Paragraph 52 of the report of the Comptroller and Auditor General reads:

Exchequer-Miscellaneous Capital Receipts.

Over the years moneys have been provided from the Vote to enable the Industrial Development Authority (IDA) to purchase land and factory space required for its industrial promotion activities. In July 1987 the Government approved a series of public expenditure reduction measures which included the requirement that the IDA should remit £5 million to the Exchequer in 1988 from the disposal of land and factory space. At the same time it was decided that the mandate of the Shannon Free Airport Development Company (SFADCo) should be extended to cover the promotion of medium and large scale industrial development within the Mid-west Region and in West and South-west Offaly and that, consequently, the IDA would no longer exercise any functions in these areas. Under these arrangements SFADCo was to acquire all IDA property in the area and contribute £600,000 from property sales towards the £5 million to be paid into the Exchequer. SFADCo had already been requested to provide £100,000 to the Exchequer in 1988 from other property sales.

In implementing the Government decision it was found not to be possible to achieve the £5 million target because of difficulties in disposing of certain properties. The Department of Industry and Commerce set a revised target of raising £3.8 million, by the IDA with the target for SFADCo remaining unchanged. The IDA in 1988 disposed of property which originally cost £11.815 million for a consideration totalling £4.1 million of which £2.5 million was paid into the Exchequer in 1988 and £1.3 million in January 1989. The IDA has indicated that the remaining £300,000 will be paid into the Exchequer as part of the 1989 contribution target.

For its part, SFADCo paid £250,000 to the Exchequer in December 1988 and £450,000 in August 1989 from the proceeds of property and equipment sales and disposals under deferred purchase arrangements. Information furnished to the Department by the company indicates that the realised prices represented a profit of £100,000.

Mr. McDonnell.—Chairman, you will see here I am referring to a Government decision to raise £5 million for the Exchequer in 1988, from the sale of land and factory space by the two industrial development agencies. You will also see that, in the event, the amount paid to the Exchequer in that year was just over £4 million, because when the Government decision came to be implemented the Department had to modify the target figures as there were difficulties in disposing of certain properties.

I want to clarify, and it is important that I should, a point in relation to the figures quoted at the end. You will see that the IDA are shown to have incurred a loss of £7.7 million on its disposal of property. According to the paragraph, SFADCo provided information which showed that they had realised a profit of £100,000. That figure of £100,000 is not correct, because it was later established that when providing information through the Department on the historical cost of the properties they were disposing of, they inadvertently understated the historical cost figure by £250,000. In fact, that should come out at a loss of £250,000 on the SFADCo figures. You could take it that in the total package the loss on historical cost basis for the two organisations is just about £8 million. That is, the £7.7 million and the £250,000 which I have now corrected.

Chairman.—This is an extraordinary business. Let us take these two agencies one at a time. Let us look at the IDA specifically. We will come back to SFADCo. I did not think we were going to concentrate too much on that because it looked as if they actually made a profit but they had a loss of £250,000. Let us look at the IDA disposal. What were the circumstances under which they disposed of property purchased for a little over £11 million at a loss of £7.7 million? How does that arise? Surely this raised many queries in your own Department, Mr. Donlon, before ever it came before the committee?

Mr. Donlon.—The question as to the disposal of properties forms part of a Government decision in July 1987 that the IDA should provide £5 million for the Exchequer from the disposal of land and factory spaces. This was one of a number of measures introduced by the Government in an effort to bring finances into order. That is the basic genesis of the direction to raise £5 million. The matter was then for the IDA and Shannon to implement the directive in such a way as to ensure realisation of those amounts.

Chairman.—When were these properties purchased? Was it land, or factories or both?

Mr. Donlon.—It would have included both. They would have been purchased over periods. Some would have been in possession for some length of time.

Chairman.—How much of the value was factories?

Mr. Donlon.—The total realisations in respect of land were roughly £3.2 million and in respect of buildings £1.1 million. Buildings would be factories.

Chairman.—What was the cost of the land and the buildings?

Mr. Donlon.—The total cost was £11.8 million and the total realisation, £4.3 million.

Chairman.—Yes, but what is the breakdown of the cost of buildings and land?

Mr. Donlon.—The cost of buildings was £2.3 million and lands £9.5 million.

Chairman.—Could you tell us where the bulk of this land was?

Mr. Donlon.—It was spread around the country.

Chairman.—Do you think that is a satisfactory situation, that because the Government take a decision a Government agency can, at a bargain basement level, dispose of land valued at almost £12 million, not almost £11 million, for £4.3 million? What is the explanation you received for that as Accounting Officer?

Mr. Donlon.—The explanation for the losses?

Chairman.—The explanation for the losses, yes.

Mr. Donlon.—The reality is that the Industrial Development Authority were in a situation where they had to dispose of particular holdings to bring forward certain amounts of money. As to the manner in which it was sold, obviously that was a matter for the Authority but my position would be that it is very difficult to say that now is a right time to sell any particular asset. The market value at any one time will obviously depend on the level of supply and demand at the time the asset is disposed of. In this instance, first, the highest price for land was not obtainable. Secondly, the costs that I gave to you were not the actual purchase prices but there was some development work undertaken on some of these sites and buildings at a cost. It would be part of the £11 million but the actual purchase price of the land would have been somewhat less. One would not expect in disposing of the land, perhaps for agricultural purposes, to get a reflection in the price for whatever development work one had undertaken on the site.

Chairman.—Could you tell the committee in terms of vacant factories and land that the IDA have, how much of a land and factory bank do they have? What is the value?

Mr. Donlon.—The value at the moment would be in excess of £200 million.

Chairman.—So, supposing you had £200 million worth of land and property and you wanted to raise—

Mr. Donlon.—That is total holding of the agencies. Some of those holdings would be occupied, etc. The amount available at any one time is substantially smaller than the total.

Chairman.—Could you give some idea as to what that might be?

Mr. Donlon.—The total factory space available for promotion at the moment would be of the order of 1.2 million square feet. At the end of 1989 they would have held 5.5 thousand acres of land.

Chairman.—Would you have a value for both?

Mr. Donlon.—I am afraid I do not. The total portfolio is in excess of £200 million.

Chairman.—That includes occupied?

Mr. Donlon.—That includes occupied and vacant.

Chairman.—Suppose you had 1.2 million square feet of factory space and land of 5.5 thousand acres and you wanted to raise £5 million — and the Government are quite right to take a decision; it is their entitlement to sell off part of this and raise some money — would you be inclined to sell land that you could not sell at the market price? Would you not be inclined to sell land somewhere where you would get the going rate? Out of that total amount of land and factory space, can we be assured that the IDA were not off-loading white elephants that they had bought down through the years and using the Government directive to do so? It seems to me that there is something very wrong in this whole situation, that out of that complete bank of factories and land they could not find a prime site that they could sell off at market value which would be near to or greater than the price they paid for some of the land or factories.

Mr. Donlon.—The land sales and so on were effected by the IDA. They identified the sites and so on—

Chairman.—That is what I am saying.

Mr. Donlon.—for disposal and that would be a matter for day-to-day administration within the Authority. In regard to prime sites, there was a site of which I am aware which the IDA endeavoured to dispose of but the reality was that tenders were in no way acceptable. To the best of my information, the IDA did everything that was necessary to ensure that the best price was obtained including engaging professional advisers, submitting sales to tender and so on. The manner of the disposal and the price, basically, were recommended by the professional expertise they brought in, having regard also to the tenders which were received. I understand that in certain instances pockets of land would have been sold by the Authority where they were part of an original site they held which had been occupied and in so far as they were concerned perhaps of no further use to them but perhaps were of use to another interested party. To the best of my knowledge and information, they went to great lengths to ensure that the lands they were disposing of would not, on the one hand, either reduce or diminish their ability to provide the kind of incentive which it is believed is necessary and, on the other hand, to achieve the best price they could for the lands which they had identified as disposable.

Chairman.—Mr. Donlon, the committee does not expect you to be involved in the day-to-day affairs of the IDA, or your Department, but according to the 1988 audited accounts in front of us, in that year your Department asked the Dáil to provide £130 million for the IDA, which the Dáil did. Surely, in supplying that sort of money your Department must be aware of the fact that this agency holds over £200 million in holdings. Some are occupied, but 1.2 million square feet of factory space was not occupied, as of the date you mentioned, and 5.5 thousand acres of land were in its land bank at the end of 1989. You are aware of that fact. Are you happy that the money you are giving this agency is being properly and reasonably invested? Why do they need all of this land and why when they go to sell off the land can they not get a reasonable price for it, something which relates to what they paid for it? I do not think that you or I would be happy to run our affairs in such a way. I think you would be having sleepless nights if you ran a business that made that sort of loss on a sale. It seems to me that out of all the land and factories they have, they could have found some they could have sold at a more reasonable price. It seems to me there has to be a reasonable suspicion that they were off-loading land or property which they really should never have had or acquired in the first place. What controls in the overall are you and your Department exercising in that regard?

Mr. Donlon.—The principle of the holding of lands is a policy with which I would agree. In fact, it is a necessity in today’s world where, by virtue of the nature of mobile investment and so on, in many instances one has to be in a position to react almost immediately by way of either the provision of a particular serviced site or, alternatively, a particular suitable factory. The principle is one which is in wide use as an incentive for industrial development purposes. I am aware, specifically, that the Scottish Development Agency, for instance, in 1988-89 spent in excess of £100 million on acquisition of new space and something similar was expended, as I understand, by the Welsh Development Association. It is regarded as being a legitimate tool in the industrial policy incentive area.

Chairman.—If the Welsh Association did this they would be up before the Public Accounts Committee and the Comptroller and Auditor General. The Comptroller and Auditor General there would have his own advisers in who would have measured it and would be able to tell the committee whether, in fact, it was reasonable or there was value for money. But you have to account to the Public Accounts Committee here, Mr. Donlon. You are comparing with the Welsh situation. These people have sold off land at a great loss. Have the Welsh authorities sold off land at a great loss?

Mr. Donlon.—Chairman, you had asked in the course of your question why the need for the land. I am saying at this stage that the ownership of land and buildings is a legitimate and necessary tool.

Chairman.—But the question is, do they need that level of land, do they need that level of factories? Does somebody supervise where these lands and factories are purchased and built? Is there some control kept on them for the money that we are giving them every year? It would appear not to be if they are able to sell land which costs £11.8 million for £4.3 million.

Mr. Donlon.—There has been concern about the volume of holdings by the Industrial Development Authority and the other agencies in this area. In fact, in the review of industrial policy in 1984 it was stated that the land holdings were excessive, that the desirable position would be that there should be a holding of the order of, perhaps, two million square feet. The reality at the moment is that the IDA holdings, non-occupied, would be slightly in excess of that, in fact, in excess of three million. A percentage of that would be reserved for occupation and that which is available at that stage is that which I have mentioned to you. Clearly, there is a concern about the amount of lands being held and the cost of this. It was for this reason that that particular target was set of maintaining a level of about two million square feet all round.

There is still a concern about the amount of land which is being held. This is a matter which is being addressed in the current review of industrial policy and we have taken a decision within the Department, at this stage, to initiate a large scale review of the policy of land holding. Having said that, we are concerned about the actual quantities which are being held. In so far as the principle is concerned, we do accept that there is a need for the holding of this facility which, in many instances, can be critical in a decision by industry to locate in any particular area or country.

Chairman.—What does the Department of Finance have to say about this?

Mr. Howard.—Chairman, we would agree with what the Accounting Officer has said, that the holding of a certain amount — and the amount, obviously, can be a matter for judgment — of land and available factory space is an essential tool in the industrial promotion effort. We would certainly agree with that.

Chairman.—Would you agree that there is a review long overdue? What has the Department of Finance done since the Comptroller and Auditor General’s report was issued to ensure that that review is carried out? I understand from Mr. Donlon that his Department are carrying out the review. Surely, your Department must have had its eyebrows raised when it saw this particular report from the Comptroller and Auditor General?

Mr. Howard.—The situation there I would say is as indicated by both the Comptroller and the Accounting Officer, that following a Government decision in relation to public expenditure reduction measures, a target was set for the IDA and SFADCo.

Chairman.—So you would not have been concerned if they sold £50 million worth of property for £4 million? Surely, at some stage you were expecting them to get value for money, Mr. Howard?

Mr. Howard.—I would not suggest that for a moment. Value for money, obviously, is something that most people would hold out as an objective and particularly the Department of Finance. On the other hand, one has to accept the reality that if you put property of any nature on the market you are depending on demand at a particular time for what you have to offer.

Deputy Cullimore.—Mr. Donlon, the Government target was £5 million worth of IDA property to be sold and that was revised to £3.8 million. Is it correct to say that that was revised because the land bank you had was completely over-valued? In my constituency in Wexford I know of a site outside the town, a substantial site, which was purchased and access to it is questionable. It is impossible to get proper access to it. It adjoins the River Slaney and it is certainly questionable as to whether the Slaney can absorb any type or quantity of effluent into it. I would suggest to you that the land bank the IDA have is completely over-valued.

Mr. Donlon.—When we referred to the costs, the two figures we used were the realisations and the historical costs. There is a book value as well, which would be less than the historical cost that we have been using. To say that they are over-valued at this time would be incorrect. The reason the figures changed from £5 million downwards was, almost exclusively, due to the fact that the Industrial Development Authority sought to dispose of a particular holding and they could not do so and they could not see any prospects of doing so. For that reason the target was revised downwards. Additionally, about the same time, there was a transfer of responsibilities from the IDA to Shannon for the mid-west region and ownership of lands and so on and an amount of £600,000 was apportioned to Shannon for realisation on their part. The basic answer is that the greatest influence on the reduction from £5 million to £4.4 million was the influence of the difficulties in disposing of his particular piece of land, which was quite significant in size.

Deputy Cullimore.—Would you consider asking the IDA to revise the price or the costings of their land bank in view of the fact that the site we have in Wexford is completely overvalued?

Mr. Donlon.—As I understand it, and perhaps the Comptroller and Auditor General can confirm the position for me, the lots are reflected in their accounts at book value.

Mr. McDonnell.—Yes, the IDA did carry out an exercise some couple of years ago when they did a complete revaluation of all their property holdings and had a very significant write-off in their accounts. They wrote down the value of all their properties. I do want to emphasise a point that one can take a view that they realised something approaching the book value. If one takes the book value the loss does not appear to be as great, but what I was concerned about is that the cost to the taxpayer obviously is the difference between what you bought it for and what you are selling it for. That does not even include holding charges, interest and capital, for instance, if one wanted to build that into the equation. It does, as the Accounting Officer said, include development costs which might well not be reflected in the selling price.

Deputy McGahon.—I just have to reiterate the Chairman’s phrase that this incredible story is another example of the unbelievable waste that occurs in the public sector under any Government. It defies logic how £11 million worth of assets could be given away for £4 million simply to realise the Government’s objective. We are told that you had particular expertise, and of course the people who did away with the Harcourt Street railway line claimed to be experts, too. It has to pose a question over the expertise available within the IDA. Do they have a property section? Are they up-to-date with the real world outside? Were the Government made aware that there was this tremendous abuse of taxpayers’ money? Was that going to occur in order simply to blindly fill the requirement that £5 million would be required? I do not know how you can justify it, and I certainly do not know how the representative of the Department of Finance can condone this particular action. This money was actually given away.

Mr. Donlon.—It seems there are two issues. One is the question of the actual disposal and the losses incurred and the second is the fact that lands are held. In the second case, I have already stated my views as to the desirability of there being land holdings and factory holdings available. On the first point, the question of the actual disposals, no-one is going out to sell at a loss. The reality is that the price that you get for anything you are selling today is the price that will be paid by the person who is willing to buy on that particular day. There was a requirement that they raise certain money in a certain fashion, but one is dependent upon the marketplace.

Deputy McGahon.—I am fully aware of the necessary requisites in buying and selling. That poses the question of the price that was paid for these lands and the expertise that is available to the IDA who paid out £11 million for this particular area. I accept that the IDA need a land bank and that they need buildings. Nevertheless, a loss of such magnitude between the buying and the selling of particular property, irrespective of where it was located, is a very, very serious loss for the Irish taxpayer — £7 million. Again, I think it should be made available to us where this land was sold. The Chairman suggested that possibly the wrong land was disposed of. Could an area of land that would have realised a higher price not have been disposed of in order to meet the Government guidelines? Why was the Irish taxpayer saddled with a loss of £7 million and where did it occur? Where was the land sold, what county? In what part of the country did this particular transaction occur which left a deficit of £7 million and which surely poses a question of credibility with regard to the expertise used within the IDA in the buying and selling of land?

Mr. Donlon.—As I understand it, first, the IDA do maintain a property section. I imagine it is not as big now as it was. Secondly, they would have engaged — and did again, as I understand engage — professional expertise which they paid for, by way of advice and actual sale of properties. A factor which would have been very much in the minds, I imagine, of the IDA in deciding which lands to put up for sale would be the need or the desire to maintain as good a balance in the residual land holdings as possible. One would not concentrate total land sales in one particular area as a result of which it was spread out; as I indicated to the Chairman earlier, it was practically all over the country, Donegal, Westmeath, Kilkenny, Kildare, Wexford, Waterford, Mayo, Sligo, Dublin, Kerry. It is quite a list; the holding in many instances quite small, in some instances fairly significant.

On the question of taking value judgments as to what lands should be disposed of, clearly again those decisions were actually taken and the judgments made by the Industrial Development Authority. First, I would expect that they would have had regard to the prospects for particular pieces of land at the particular time. Secondly, and perhaps related, was the fact which I mentioned earlier that where they had bought a certain acreage and since the time of purchase a factory had been built and a ring fence or whatever had been built around, you were left with residual acreage. Obviously, they would not be particularly attractive and I am sure they featured quite strongly. I mentioned site development costs. I imagine an effort would have been made on the part of the Authority to minimise perhaps the number of sites which would have been disposed of for which site development costs had been undertaken. Having said all that, I would agree that losses of this magnitude are very disappointing, that they are a matter of concern. We are talking about a requirement to sell at a particular time and how one sells at that time is governed by the market which is available, which point you have accepted.

Deputy McGahon.—Just one point. When the IDA are purchasing land or property, do they identify themselves in the market? Is it bought on their behalf, or does the very fact that they are interested in a property inflate the price and could this be part of the explanation of such heavy loss here? In other words, if I am selling a piece of land and I know that the IDA, the State, are involved, I would be naturally looking for more money. Who does the purchasing for the IDA? Do they reveal their hand?

Mr. Donlon.—I would accept that as a very valid point. As I understand it, the IDA operate through local agents in effecting these purchases. That may not always have been the case. It may have been that the Authority itself in its construction building area may have been actually going out. I accept fully what you say, that if word spreads around the community that the Industrial Development Authority are looking for attractive land, prices immediately go up. One can understand that and to the best of my knowledge the IDA are endeavouring, through the use of local agents and so on, to effect purchases where they are being made at this time.

In so far as the disposal of land is concerned, whether the same point is true or not, I do not honestly know. Obviously people in the neighbourhood would know that a particular acreage going on the market is acreage being sold by the Industrial Development Authority irrespective of who is the agent. A view perhaps might be taken within a particular locality — I am not suggesting that they would all collude, etc., but one can understand the risk of developments of the kind occurring which might not necessarily reflect or result in the IDA getting the best price available.

Deputy McGahon.—This is a very significant loss. Is this likely to occur again in a sale, or how seriously do you view this particular loss?

Mr. Donlon.—The loss clearly is viewed seriously but, as I said, if I could use the expression, in so far as the IDA were concerned we had a forced sales situation. One was bound by the different constraints of the particular time and losses occurred. It is a matter of great regret. I am very disappointed that such losses were incurred, but this was initiated in response to a particular directive. In so far as further disposals are concerned, the reality is that the IDA in their day-to-day activity, are buying and selling tracts of land. As a normal part of their financing, they have an own resource element and this own resource income derives from the sale of assets generally. At the same time they would also be involved in certain acquisitions. Those acquisitions now would be determined by specific needs, more than just going out to buy a tract of land.

Deputy Dennehy.—Nobody will dispute the principle of the need or the availability of a land bank and buildings. Within that principle there is obviously a lot of room for manoeuvre. Could I ask Mr. Donlon what would be the maximum time that land might have been held without use?

Mr. Donlon.—I do not know if I can say without use.

Deputy Dennehy.—Sorry, without a building being put on it or a company using it for the purpose for which it was bought.

Mr. Donlon.—Looking at the list I have here, 1973, in one instance, would appear to be the longest held.

Deputy Dennehy.—That leads me to my next point. Deputy McGahon asked if there were a property section and obviously there is. Has there even been any attempt to sell areas that do not take off because, drawing from personal experience and what I have seen over the years, it would appear that a site is designated, the IDA move in and the owner is paid maximum price. Now they are boxing more cleverly. It would appear that once a decision is made that sticks, regardless as to whether it takes off or not, industrially speaking. Has the idea of selling of and moving elsewhere been looked at, because there will be attractive areas? I am not questioning the judgment of the person who would buy the initial site. One will look at the map of a county or an area and decide that that would be a good location but it would appear that with the IDA if they make an incorrect judgment they seem to be stuck with it. Have any sites been sold and alternative sites bought out of the cash in a given area?

Mr. Donlon.—As I mentioned, I would understand it to be a part of their day-to-day activity. Their business is not buying and selling land but in the ordinary course they would be disposing at any one time during a year and perhaps purchasing elsewhere. Whether in the same locality or not I do not know. The actual value judgments, in so far as acquisitions and disposals and so on are concerned, are matters for the IDA. They are not matters in which we become involved. To the best of my knowledge they are endeavouring to exercise the best disciplines possible in this area. Yes, they would be buying and selling but whether in one particular locality or not I do not know. I am sure there are instances.

Deputy Dennehy.—From my own experience I have not seen it happen. It was something that would have worried me in the past. Whether it be for a shop, factory or so on one can pick a wrong location but there seemed to be the attitude of staying with it regardless.

I would like to ask a question about the promotion costs of industry, relating to SFADCo in another area but would that come under the——

Chairman.—I was going to suggest — and I see Deputy Rabbitte indicating — that since we still have the Vote to go through we are inevitably going to have to recall Mr. Donlon to complete that. We will not complete it today, as it is heading for 1.30 p.m. What I would suggest we do is that we ask his Department and the Department of Finance to consult and in the meantime let the committee have a report on what controls are in place to ensure that the IDA land and factory space available is reasonable and is well managed and controlled. They should also let the committee have the details of the locations of the sites and factories sold and the cost and sale of each of those. Perhaps, if you could prepare that report in the meantime and forward it to the committee we can resume the examination in September. That should give you adequate time to consult with the Department of Finance and to assure the committee as to what particular controls are in place. Then we could deal with the remaining questions that Deputy Dennehy has under the Vote when we get to that.

Deputy Rabbitte.—Would it not be the situation, Mr. Donlon, that there has been a major change in industrial strategy and the kind of industry and so on that the IDA might hope to attract since the early seventies? At that time some of this problem began to accumulate and some of the land acquired and so on would no longer be necessary or suitable. Therefore, the Authority would have no option but to dispose of a lot of that land because it simply could not be used productively in a new industrial climate.

Mr. Donlon.—I would agree that the Authority would have to take value judgments at very regular intervals as to the holdings they have. Presumably in the disposals they engage in in the ordinary course of business these disposals are influenced by their view or perception as to the attraction of a particular site, whether or not it can be used for the purpose for which it was originally intended, etc. Yes, they do respond in that way. I would also accept that there have been such changes that one might question whether a site purchased for a particular heavy type of industry, which is now no longer on the horizon should be held. I would expect that the authority in taking their decisions would have regard to such considerations.

The witness withdrew.

The committee adjourned.