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, 27 Meán Fómhair, 1990.

Thursday, 27 September, 1990.

The Committee met at 11 a.m.

Members Present:

DEPUTY G. MITCHELL in the chair

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

VOTE 35 — INDUSTRY AND COMMERCE.

Mr. J. Donlon called and examined.

Chairman.—The Committee of Public Accounts of Dáil Éireann, in these rather overcrowded circumstances which are due to the fact that the rooms are being refurbished for broadcasting purposes, are resuming the examination of the Accounting Officer for the Department of Industry and Commerce, Mr. John Donlon, on the 1988 Report of the Comptroller and Auditor General and the Vote on the Appropriation Account. On the last occasion we asked Mr. Donlon to forward to the Committee, having consulted with the Department of Finance, a report on the question of the sale of lands at a substantial loss — something in the order of £5 million — according to the Comptroller and Auditor General’s Report. That report was forwarded to the Committee, and unfortunately, it was received only within the last few days. I saw it for the first time yesterday evening and I presume it is before members of the Committee now. I welcome Mr. Donlon to the meeting and, perhaps, he will give members a run through on the document. We will pursue questioning from there.

Mr. Donlon.—Thank you, Chairman, and I apologise for the slight delay in coming here. I would also like to apologise for the delay in letting the Committee have the report. Unfortunately, given the time of year and so on, it was very difficult to get things organised as expeditiously as we would have wished.

In the report in replying to the points made we tried to be as comprehensive as possible. We dealt with the role of the Department of Industry and Commerce in this area, and the rationale for State investment in industrial property. We then dealt with actual holdings, both land and factory space, IDA expenditures in the area, levels of recent acquisitions and the most welcome development of an increased private sector involvement in the area. There is reference also to accounting policies and operational controls in place. There is a section dealing with the main point at issue, the disposals of property pursuant to Government decisions. If you wish me to go through it in any more detail I will be glad to do so.

Chairman.—When you come to the profit or loss on sale what you have been using is the historic figure, what it cost to purchase the sites many years previously. Presumably, if you were to do it on a profit or loss basis, the cost of financing those sites would have been taken into account? It is not taken into account in the figures put before the Committee, is that correct?

Mr. Donlon.—There were two sets of figures. There was the historic cost and there is also a book value which is used as well.

Chairman.—The book value would not include, for instance, the financing of those costs. Those sites would have been purchased by moneys borrowed through the Central Exchequer which the Central Exchequer had in turn to finance. That is not taken into account in estimating the historic cost of the site.

Mr. Donlon.—I do not think it would have been, but the Comptroller and Auditor General may be able to comment on that.

Mr. McDonnell.—I think what the Chairman is referring to are the figures on page 13. I said in my remarks the last day that I was concerned to indicate what the figure was in terms of cost to the taxpayer. The IDA in 1985 wrote down the value of their properties by a very significant amount, it was several million pounds. The figures on page 13 of the Department’s document — which I also got this morning — which are divided into normal IDA sales and Government prompted sales so to speak. The profit or loss there is related to the book value of the properties and if one wanted to talk in terms of the cost to the taxpayer the profits or losses there would have to be changed. For example, in the normal IDA sales column the 1988 figure shows a loss of £666,000 on book value. The loss on historic cost would be about £2.4 million. In 1989, the IDA sales showed a profit on a book basis value of £2.23 million which, in fact, was a loss of £1.8 million on a historic cost basis. If one looks at the Government induced sales figures, one will see that the loss was £4.3 million for 1988 on book value and on historic cost there was a loss of £7.7 million approximately. The loss of just under £2 million in 1989 on book value figures would in fact, be a loss of £2.9 million. What I was concerned about the last day, and what I think was of concern to the Committee, was the cost to the taxpayer.

Chairman.—In your estimation, taking into account the various transactions, what was the loss to the taxpayer?

Mr. McDonnell.—The loss to the taxpayer in 1988 was £7.4 million. In other words, the loss before revaluation or depreciation, as between the cost price and the selling price, in 1988 was £7.4 million and in 1989 was £2.8 million. I think I am reading those figures correctly from page 14 of the Department’s document.

Mr. Donlon.—I have a separate note to the effect that for all 1988 sales book value was listed at £8.4 million whereas historic cost was £11.815 million. The property was sold for £4.1 million and so, perhaps, we are talking about the difference of about £4.3 million in so far as book value is concerned, and £7 million in so far as historic cost is concerned.

Mr. McDonnell.—These are the Government directed ones in 1988.

Chairman.—What you are saying is that in 1988 and 1989 the total loss would be £7.439 million and £2.841 million, a total of £10.29 million on historic cost.

Mr. McDonnell.—That is right, on the ones directed by the Government. In round figures it was £10 million in historic cost figures.

Deputy M. Ahern.—Leading on from that, if the IDA had held on to the sites that were sold would they have depreciated further over the years? What is your estimate?

Mr. Donlon.—In accordance with accounting practices there would have been a depreciation applied to each year.

Deputy M. Ahern.—In practical terms?

Mr. Donlon.—If we are talking in terms of disposal of the properties, obviously if one is disposing of a property it depends on the market situation at any one time. You can go at a good time. Some of these sales were effected before there was something of an upturn in property values. It very much depends on timing and on the urgency of the sale. Obviously, what is regarded as a fire sale will not secure for you as much as you would be able to obtain in more normal circumstances.

Deputy M. Ahern.—Was it difficult to sell those sites? Do you estimate that if you continued to try to sell a lot of them that they would have gone up or down in value or stayed the same?

Mr. Donlon.—One of the points that emerges in the course of the report is that over the past four years in normal sales quite a significant profit was obtained. The difficulty seems to arise when we are faced with a forced type of sale. In three out of the last four years actual profits were shown and over the four year period there was a profit in excess of £2 million. The general point has to be made that the Industrial Development Authority are not actually into property development as such for the money; they are in it as a tool of industrial promotion.

Chairman.—Will you tell the Committee how these land banks were sold? Were they sold on a local basis or were they sold on the open market? Was there tendering? How did the sale take place?

Mr. Donlon.—My understanding of the position is that they would have been sold using professional agents where necessary. I imagine that there was a tendering process. Certainly, I am aware that in a number of cases tenders were invited, and considered, and I suspect that that was the way it was done in all cases. In many instances — I cannot say all instances — they would have engaged professional expertise, estate agents and so on, and the property would have been disposed of in the normal way through those agencies.

Chairman.—Advertised and put on the market?

Mr. Donlon.—Advertised, presumably, subject to tender and so on.

Chairman.—Was there a reserve price in these cases, given that the price of land very soon afterwards started to increase? The increase, in fact, might have started in 1987.

Mr. Donlon.—I do not believe that in the cases where forced disposals were at issue there would have been a reserve price in place. An effort was being made to get the best price possible by way of disposal of lands which had been identified for the purpose of meeting the target which had been set for raising of income.

Chairman.—In the sale of these lands did the IDA, or your Department, at any time look at the possibility of approaching local authorities to see if planning changes could be made on the sites and, therefore, the sites sold at an increased value, or did any of the sites subsequently have a change in planning permission giving a windfall to the purchaser?

Mr. Donlon.—On the last question, I cannot honestly answer. I do not know if any lands which were sold in 1988, or indeed since then, might have been the subject of a change of planning permission. In so far as the general exercise is concerned, lands which would have been purchased would have been purchased for industrial development. If there was not the relevant planning permission in place it would have been secured in the period following purchase. We are talking about disposing of land which has permission for industrial development and which should as a result of that carry a certain premium. If you are not able to sell the land at the end of the day for industrial development you are obviously going to have to take the best price available, presumably something in the region of a price that would be available for land for agricultural purposes, and we have seen a drop in that type of valuation over the past few years.

Chairman.—Let me ask you about decentralisation. The Committee have been looking at some of the very impressive decentralisation developments which took place in Sligo and Shannon. Did the IDA, or your Department, look at the possibility of selling some of those sites to other Government Departments for use for that purpose?

Mr. Donlon.—Certainly, as a Department we did not approach any other Department to see if there was an interest. Sales were effected by the IDA. Presumably, they went through the normal process of disposal through regular professional channels and if any other Government Department or agency was interested in any of the parcels of land which were being put up that interest I am sure would have been expressed by them.

Chairman.—They would have been aware it was for sale?

Mr. Donlon.—They would.

Chairman.—What sort of expertise have the property portfolio managers in the IDA got?

Mr. Donlon.—I am informed that the property management division staff of the IDA is made up of the following expertises, engineers, chartered surveyors, expertise in environmental economics property, and civil engineering. They are the main skills which are within the property division. The bulk of those would be accounted for by engineers.

Chairman.—What audit provisions were in place to make sure that all of these sales took place at arms length?

Mr. Donlon.—All disposals, as with acquisitions, require approval from within. I am not too sure what checks there would be in in place to ensure that everything is at arms length but, on the basis that the sales or disposals are affected using professional advice by an open advertising system, I would say that every effort is made to ensure that everything is done on an arms length basis.

Chairman.—The White Paper suggested that advance factory space should be held at any one time to a figure of something like two million square feet. Could you tell the Committee what is the figure at present and how that compares with the Scottish and Welsh development authorities? You do provide some comparative figures. In other words, is the land bank being held by the IDA sufficient or do they hold too much land or on what basis do they decide on how much land to hold at any given time in terms of factory space and other land?

Mr. Donlon.—On factory space, table 1 on page 7 sets out the situation as at the end of 1989 where there was a total area held by the two agencies of 20 million sq. ft. of which 17 million was occupied leaving a “vacant” square footage of 3.4 million. Of that 3.4 million, 2.1 million was reserved leaving available for promotion 1.2 million sq. ft. which would compare favourably with the figure of 2 million which is mentioned in the White Paper. The figure of 2.1 million is stated as being held in reserve. Property only goes into reserve at a time when there is a certain level of confidence about a promoter moving into that particular area.

Chairman.—Is this factory space greenfield or is some of it advance factory space?

Mr. Donlon.—We are talking about actual factory space, buildings and so on.

Chairman.—So it is advance factory buildings?

Mr. Donlon.—Yes. The land holding is different.

Chairman.—What is the extent of land holding?

Mr. Donlon.—The IDA had 3,350 acres of land at the end of 1989 while SFADCo had 2,200 acres.

Chairman.—How do you decide? Does your Department review the IDA’s decision as to what is the optimum acreage of land or factory space to be held?

Mr. Donlon.—In the White Paper to which reference was made indications were set as to what the holding should be. I indicated when I was before the Committee on the last occasion tht in the course of the triennial review on industrial policy, the report of which it is hoped will be published in the not too distant future, we would be indicating that we were initiating a further review of the State’s role in the property area. A number of changes have occurred over the period of the State’s involvement, the most notable being that in most recent times private developers are becoming more and more involved in the provision, perhaps on a speculative basis, of industrial property, buildings in particular.

Chairman.—Before I open up the discussion to other Members I want to ask a couple of questions, Mr. Donlon. Will you tell the Committee in regard to this land bank and advance factory space how you consider the IDA compare with the Scottish development authority, the Welsh development authority or the Northern Ireland development authority? Is it reasonable in comparison?

Mr. Donlon.—According to data in the annual reports of the Scottish Development Agency in the year 1988-89 they provided over 500,000 sq. ft. of new space while the Welsh Development Agency completed 600,000 sq. ft. of advance factory space.

Chairman.—What did they have in stock compared to the figures you gave us?

Mr. Donlon.—At the end of 1989, the Welsh Development Agency had a property portfolio valued at £248 million and the Scottish Development Association had one valued at £174 million. I have become aware within the past few days that the Scottish Development Association have actually embarked upon a substantial programme of disposal of properties. I cannot give the Committee any further information on that at this time.

Chairman.—One can only hope they can justify it to the British public accounts committee when the time comes. How does the Scottish and Welsh acreage figures compare to the Irish figures, 3,350 acres and 2,200 acres held by the IDA and SFADCo and the advance factory space of one million square feet? Do you have those comparative figures?

Mr. Donlon.—I am afraid I do not have those figures. I will try to get them but I do not have them at the moment.

Chairman.—On page 13 you refer to income from rent and interest of deferred sales. Were you receiving income from the sites that were sold in the forms of rent or in any other way such as conacre?

Mr. Donlon.—Both in the case of land holdings and buildings there would have been certain incomes. I am not saying it would be the case in 100 per cent of the holdings. Land is let on the 11-month basis where considered appropriate and in the case of buildings the IDA let certain buildings for industrial purposes. Shannon Development have adopted a somewhat wider remit in that they let also for some service activity. There would, of course, be income then.

Deputy Flood.—At the outset the Chairman referred to the fact that the report had been only very recently received. Notwithstanding our discussion today, we should be given an opportunity to return to this subject at a later date after we have listended to Mr. Donlon’s explanation. It is an important and wide-ranging report with such serious implications. As I understand it we are talking about a loss to the taxpayer of about £10 million and it is necessary for us to come back to the report and I so propose. There are some questions I would like to raise at this stage. First, on the lands and buildings which have been sold, was there a maintenance cost occurring on an annual basis to the IDA?

Mr. Donlon.—Yes, there would have been.

Deputy Flood.—Do you have any figures on that?

Mr. Donlon.—The figures may have been disclosed in the IDA’s annual accounts. If they have not been I will provide them for the Committee.

Deputy Flood.—Can you give is an indication of what the cost would have been? The report states that in many cases land was acquired from local authorities generally at the prevailing local authority land price. Presumably land was also acquired from private land owners?

Mr. Donlon.—It would have been.

Deputy Flood.—When you came to dispose of those lands did any people in the private sector or local authorities who disposed of the lands originally to the IDA submit tenders, as you have explained to us, to buy back those lands?

Mr. Donlon.—I am afraid I do not have that detail.

Deputy Flood.—Will you be able to provide us with that information?

Mr. Donlon.—If I am in a position to obtain it. As I mentioned earlier it was the Industrial Development Authority who effected the sales. As to the detail of who was involved in tendering, and whether tracts of land ended up with their original owners, I cannot say.

Deputy Flood.—It is a fairly crucial question and we should have some information on it. Are you in a position to obtain that information from the IDA for us?

Mr. Donlon.—I will try to.

Deputy Flood.—What does that mean? I am asking if we can get the information.

Chairman.—I think you should get the information, Mr. Donlon. We may have to return to the matter as Deputy Flood suggests and you should obtain that information from the IDA.

Mr. Donlon.—May I suggest to the Committee that all of this has been done by the Authority under the control of the Authority and their board. Obviously, more accurate information — sorry, I hope I am giving accurate information — more detailed information could, obviously, be obtained from the Authority themselves.

Chairman.—You are not suggesting we should ask the IDA board to attend here?

Mr. Donlon.—I am merely saying that the Authority would be in a better position to provide the detailed information direct. I can endeavour to provide further detail but there may be further questions.

Chairman.—Along the lines of the proposal that Deputy Flood made we will have to recall you when we have had a chance to reconsider this report. Perhaps you will make a note of the question Deputy Flood asked, obtain the information before the next meeting and have it with you.

Deputy Flood.—I take it that the IDA are accountable. Am I correct in saying that the IDA are accountable, through Mr. Donlon’s office, to the Committee of Public Accounts?

Chairman.—Mr. Donlon’s office provides a substantial grant-in-aid to the IDA annually and Mr. Donlon is responsible to this Committee for that expenditure.

Deputy Flood.—With regard to local authority lands, are we in a position to say if any zoning changes occurred on the lands after they were acquired by the IDA?

Mr. Donlon.—Again, as I had to indicate to the Chairman a little earlier, I am not in a position to answer that. I do not know what changes might have taken place as far as zoning was concerned following disposal but, I think, in each case we were talking about land being disposed of which had been zoned for industrial development purposes.

Deputy Flood.—Why is it that in the major urban areas there seemed to have been a concentration of land acquisition in certain districts? I am talking particularly about the new towns around Dublin. There seemed to have been a concentration by the IDA in acquiring lands in maybe one or two areas for the development of industrial estates etc., while other major growth areas were effectively abandoned by the IDA. I have to make a case from my own local knowledge about the Tallaght area. In the new town of Blanchardstown, for example, the IDA acquired a fairly substantial land bank but an area like Tallaght seems to have been abandoned for some strange reason. I know that there has been some slight change in this fairly recently in Whitestown but, effectively, no land was acquired. Therefore, how was the land acquisition policy of the IDA directed that would allow this to occur?

Mr. Donlon.—My understanding of the IDA’s policy in acquiring land is that it is done on an even basis in accordance with the plans for regional development in different areas around the country which have regard to demographic trends, to locations of proposed new towns, satellite areas and so on. There is also the need to ensure an equal or regional spread of industrial development activity. In so far as concentration in any specific area is concerned, I am aware that the Authority endeavoured to acquire advance holdings in areas, for instance those you mentioned around Dublin, which were regarded as being growth areas. I am not aware that they have pulled out of any particular area.

As far as I can recall the IDA, in the year of account, provided certain specific facilities in the Tallaght area, but as a general principle the idea is to provide for holdings, be they land or factory space, in areas which are perceived to be of need or will be of need, given demographic trends etc. There is also the very strong urging on them that it be done having regard to regional development, that it is evenly spread throughout the country.

Deputy Flood.—With regard to the expertise to deal with the disposal of land and properties within the IDA we are not talking about a successful operation on behalf of the taxpayer. Did the IDA, to your knowledge, call in any expertise that they did not have available to them from within their own organisation?

Mr. Donlon.—Professional advice on the disposal of lands would have been engaged by the IDA.

Deputy Flood.—Was the marketing of these lands locally based? Where was the push to dispose of the lands concentrated?

Mr. Donlon.—My understanding is that in engaging the professional advice that they did, whether on a local or more central level, they obviously had been seeking the best price possible, that this was best obtained by way of advertising of sale for land and receipt and examination of tenders in response to that. I can only assume that the advertising was given the broadest possible spread.

Deputy Flood.—Did the sale of the lands occur over two years?

Mr. Donlon.—Land is being disposed of on a regular basis and in the report we say that in normal sales over a four year period at the time we are talking about, a significant profit was made in the transactions, but what we are talking about here is a special disposal of lands on which significant losses were incurred. Lands and buildings are, however, being sold in the normal course of business.

Deputy Flood.—Apart from this special situation what is the current information regarding disposal? Is the taxpayer being further exposed to more losses or has the situation changed? It should have changed.

Mr. Donlon.—In the years 1986-89 a profit was shown in three of those four years in normal disposal of property by the IDA. In 1986 there was a profit of over £500,000; in 1987, £650,000; in 1988, a loss and in 1989 there was a profit of £2.2 million in normal sales.

Deputy Cullimore.—Does an imbalance exist in the land bank you have whereby we may have a great deal of land in areas where we have not been successful in attracting industry while we have a shortage of land in areas where there is a request for development?

Mr. Donlon.—There are areas where there are very significant or substantial holdings of land. For instance, the Ballylongford site is in excess of 600 acres. The opposite to that is that there are areas where it might be perceived that there is a need and the IDA, in their property acquisition policy, are very much driven by answering a need where such a need is perceived.

Deputy Cullimore.—Is there a proposal to sell off some of the big sites in order to help some of the areas where there is a need?

Mr. Donlon.—In their normal day to day endeavours the IDA would be anxious to address the question of need, and whether the need in a particular area might best be met by, for instance, selling 600 acres in Ballylongford is not something I would wish to express an opinion on. However, as of now IDA activity in this area is funded by own resources which are derived from disposals. Obviously, there is a relationship between disposals and the provision of property.

Deputy Taylor.—Looking through the appendices, some of the disparities between the cost price and the sale price are rather glaring. Could it be that when these lands were purchased that perhaps the price paid for them was excessive? What examination was done at the time these lands were purchased?

Mr. Donlon.—Again, when purchasing lands, professional advice is obtained. If there is a perceived need in an area for an immediate holding obviously if the vendor hears of this it is the nature of things that one might see a certain dressing up on the price; but whether or not you are paying too much for the land is another question. If you need the land at a particular time, you will only get it by paying the market price.

Deputy Taylor.—Just to take one example there — and one could pick out many — on page four of the appendices it would appear that the IDA in 1974 bought five acres of land for £23,000, spent £68,000 in site development costs and eventually sold it for £14,000. One would have thought that the value of land would escalate as the years rolled on, that something that was bought in 1974 for £23,000, even if there was no site development costs spent on it, would have escalated by five or ten fold in the period. Yet, we find that even after an expenditure of £68,000 on site development costs it was sold for a miserable £14,000.

Mr. Donlon.—I accept the point generally. I should like to remark on the holding of land that it does not necessarily follow that if you hold it it is going to appreciate in value. Secondly, the site development cost that is incurred on land is ordinarily incurred for the purposes of developing land to an extent that it can be used for industrial development purposes. If the land is not sold at the end of the day for industrial development purposes, and if the best price you can get is that which is obtainable for agricultural use, there is obviously going to be a fall or a drop taken. In so far as Ringaskiddy is concerned, the area the Deputy referred to, huge tracts of land were bought and industrial development or site development cost was undertaken on that site but not all of the land which was purchased would have been suitable for industrial development purposes because of wayleaves etc. The development cost for the site as a whole would have been apportioned on an acre basis. We could perhaps be talking about land of very poor quality and in respect of which the actual development may not have been undertaken.

Deputy Taylor.—That was just one example but a similar pattern is shown right across the board around the country where very substantial losses were taken even after substantial expenditures. I find that somewhat puzzling. The normal trend, having regard to normal inflationary pressures, is that land bought in the late seventies or early eighties has gone up appreciably even if nothing was done to it. If it was poor land when it was sold in 1988 surely it was poor land when it was bought in 1974. Are independent firms asked to advise on this when the lands are purchased and sold, or are there skilled valuers who are permanent employees of the agency working on these things?

Mr. Donlon.—I mentioned earlier the make-up of the property division within the Industrial Development Authority. We are talking about engineers, chartered surveyors, an expert in environmental economics property aspects and in civil engineering. In the ordinary course, in purchasing as well as disposing, the Authority would engage professional advice. One of the problems is if one buys let us say 40 acres for industrial development, and if 30 acres of those are sold for the building of a factory, or if 30 acres are used in connection with a particular industrial enterprise, one is then left with ten acres and one may find that those ten acres do not in themselves carry any particular value at all either from an agricultural viewpoint or from an industrial development viewpoint. One can expect that, in the disposal of such tracts, certain losses could be incurred. Additionally, where the site development cost is undertaken, if the land is subsequently sold for a purpose which does not relate to industrial development, if the only use which there can be is agricultural use, the cost of that, obviously, will not be reflected in the selling price.

Deputy Taylor.—I understand all of that and I take your point. The fact that these were forced sales, as it were, and that the IDA were under pressure, possibly extreme pressure, from the Government to sell off these lands, must have been a major factor in depressing the price of the land?

Mr. Donlon.—It was a factor because, one is coming close to a fire sale situation, but whether or not in area “X” when a piece of land came on the market it was known that this was as a result of a fire sale or whether it was part of normal activity, I do not honestly know.

Deputy Taylor.—In local areas, particularly rural areas, the word gets around pretty quickly that something is going on, that lands are being pushed and so on and that adversely affects the price?

Mr. Donlon.—In the nature of things, people in different localities know what is going on and why a particular site immediately or suddenly came on the market as opposed to another site which was on the market for a length of time. All I can say is that if one goes back to sales as a normal activity by the IDA in disposal of lands, as a general practice, it has been quite profitable.

Deputy McGahon.—To take up Deputy Taylor’s point, the problem in the sale of land by the IDA is at the purchasing stage because once a Government agency are seen to be interested, that immediately hones the price. The pace is set initially by the auctioneer. Significant losses were effected in my own town where the sale of 14 acres resulted in a loss of £67,000. That is a lot of money. My main regret is that in a town with double the national unemployment average, 34 per cent, that land had to be sold. Dundalk has had major problems for the last 22 years and I recently had an inquiry from a North of Ireland businessman who wanted to start a fish processing plant that would employ 26 people. He wanted to start in a hurry, but there was nothing available in Dundalk and he had to go to Newry to get accommodation. That was a tragedy.

Selling a land bank is a very short-sighted policy and smacks of selling the family silver. Directives to sell land blindly are regrettable. Mr. Donlon referred to the spread of regional development by the IDA and I realise that that is the objective. Despite the success of the IDA on a national basis, particularly in areas like Galway and so on, why has there been a singular lack of success in Border areas by them, an area that has been decimated over the last 20 years? Why have they failed so dismally, despite the best efforts of the personnel in the IDA in that area? Why have they failed to attract industry to Border areas?

Mr. Donlon.—I do not know Deputy if I can concede that they have failed dismally in endeavouring to attract industry to Border areas. I am aware that, for instance, in the area you mentioned, there were some announcements made within the past six months about certain developments. As a general rule, the IDA by way of their incentives, do their utmost to develop industry on a regional basis. The ultimate decision as to location is a matter for the promoter. I note what the Deputy said about an inquiry about a project in the Dundalk area and that the decision was influenced by the non-availability of a holding or a premises. That is something which, as I understand it, the IDA would be very keen to address in the normal course. If there is a need perceived, and if there is no facility, they seek to address that issue.

Deputy McGahon.—The IDA operate on a national scale and, obviously, there are varying degrees of need in relation to different regions. I did not invent the figures for the Border region. They are there. The need is tragically there and, unfortunately, the success rate of the IDA is less than satisfactory despite the best efforts of the local people. The IDA nationally, do not give the Border region the same push or the same promotion as they do to more glamorous areas where the need is not quite so great. This area has double the national unemployment average at 34 per cent. The problem there has not been embraced successfully by the IDA. People in Border areas feel that visiting industrialists are brought everywhere before they are brought to Dundalk. We take the hindmost and in many cases industrialists are not even brought to Dundalk. The success of towns like Galway and so on, is directly attributable to the efforts of the IDA. The IDA have not been successful, regrettably, in Border areas where the real need exists. The worst unemployment figures in the country are in Dundalk.

Mr. Donlon.—I accept that there is a particular problem attaching to Border areas that there is a problem in terms of unemployment rates and so on. I would also have to acknowledge that one of the most significant developments and expansions which has occurred over the past two to three years, one in which the IDA were involved, is, in fact, in a Border area. It has seen the most significant growth of any company within the State.

Deputy McGahon.—Which one is that?

Mr. Donlon.—It is in Buncrana.

Deputy McGahon.—I am talking about County Louth.

Mr. Donlon.—Reference was made to the Border areas. It would be wrong to say that the Border areas are neglected. There are also a number of activities in hands, under different programmes, to seek to further develop both the industrial and educational infrastructures in that area. I do not know if there is anything further that the Industrial Development Authority can undertake. They cannot take a particular company and tell them they have to locate in Dundalk or any other area. It is a matter which is for final and ultimate determination by the promoter in question.

Chairman.—We have explored that point sufficiently.

Deputy M. Ahern.—The headlines tomorrow morning may read “Summary of IDA Losses”, and they would probably mention sums of from £5 million to £10 million. The witness outlined the cost of the land and the site developments in relation to a site mentioned by Deputy Taylor at Ringaskiddy. I do not know how the cost of the site development was arrived at. Was it the total development divided by so much per acre? The witness said that possibly the land that was sold was probably no good to most but might have suited a certain person. Would the cost of developing the site that was sold have been the cost that was put down, so that the figures that show a profit or a loss, might not be correct?

Mr. Donlon.—I did not say that this land in Ringaskiddy was of no use to anyone. I said that as a general principle a disposal could be of a piece of land that was adjoining or at the back end of a particular development. My understanding, in so far as Ringaskiddy is concerned is that the total development cost was apportioned on an acreage basis. On the basis of that understanding, it is possible that the site development cost which is referred to, may not actually have been undertaken in so far as that site was concerned.

Deputy M. Ahern.—That is the point I would like to make. Easily tabulated figures might be worked on but in reality they might not be correct.

Mr. Donlon.—When one looks at a specific acreage, it may not be absolutely correct but it is the policy that the entire historic land cost and site development costs in that area and, indeed, in any other area, would be fully recouped under existing and future normal land sales.

Deputy Dennehy.—The point made by Deputy Ahern in relation to Ringaskiddy could be used throughout the whole argument. We are discussing this issue in a very narrow context, that is the profit and loss on sales over the past two or three years. There are other issues involved because many of us feel that land held for 16 years and not used should be reviewed carefully. Have we any evidence to show that any land that has been sold has been developed for the benefit of people generally? Is any of it likely to be developed in the foreseeable future? Again, to go back to Ringaskiddy, each parcel of land that was sold had been held for 16 years. If land is not developed after 16 years, how long do you hold it before looking at alternative uses? Is there any benefit from that side? Has any land been taken up and used for forestry or for anything else that is of benefit, or have we any evidence of that?

Mr. Donlon.—A substantial proportion of land which is sold in the ordinary course would actually be sold for the purpose for which it was originally held, for industrial development. I referred earlier to encouraging development of private sector participation in advance factory building activity. I am aware of instances where land has been sold to such people and where plants have been built, many of which have been occupied. For the greater part, if one puts money into the development of land for the purposes of industrial development, every effort will be made to ensure that it is used for that purpose. One of the problems that has arisen here in the context of the present discussion is that there were exceptional sales required and in order to effect them I am suggesting that much of the land which was sold was not sold for the purpose for which it was originally held, specifically industrial development. I expect that it would have gone for agricultural use or whatever. As to the question about whether there has been any economic benefit flowing from the disposal of lands, as a general principle I would say “yes”, but whether that is the case in respect of 100 per cent of normal disposals, I could not say.

Deputy Dennehy.—I am not well versed in company law or accountancy like Deputy Ahern but I am worried about the revaluation of 1985. I would question if that is a real revaluation. If the IDA revalue, I am sure it is at the direction of somebody up along the line, the Minister or the Department. If we revalued the portfolio in 1985 is that accepted throughout and for all time? We are now playing with two lots of figures, one which arises from the revaluing in 1985 and the other one an historical figure. There is quite a difference in that one doubles the effect of the losses if one does not accept the 1985 revaluation. In normal company practice, I presume that if a revaluation is done it is accepted for all time and one does not have some other Department going back on it.

Mr. McDonnell.—The revaluation was done in 1985 because it was perceived that the value at which the IDA were holding the land in their balance sheet, which was effectively the cost plus development costs, was seen as one which they might not achieve. When any asset is depreciated that does not in fact involve any cash transaction at that stage; it is simply writing down its value because one does not expect to realise the stated value for it. The loss actually occurs in cash terms when one does ultimately dispose of it. By writing it down, what one is saying is, “I will expect to incur a loss on this”, but the actual loss is incurred when one disposes of it. I hope I am making that clear. There is no cash transaction involved. Writing down an asset does not require cash. The cash loss arise when one ultimatley disposes of it. One has already provided, so to speak, for that loss, but the eventual loss is realised and the eventual loss in cash terms is the difference between the cost price and the selling price. There is no question of doubling up, of the loss by relating it to the historic cost. A loss which is calculated by reference to the selling price versus the book value is not the cost to the taxpayer. The cost to the taxpayer is the difference between what you bought it for and what you sold it for. It may or may not have depreciated in the meantime in an accounting sense, but there is not a doubling up in the loss in terms of the cost to the taxpayer by saying that the loss in the Government induced sales was over the two years approximately £10.5 million.

Deputy Dennehy.—I am trying to be practical and to give a correct picture of the situation. We are now discussing this in the context of forced or fire sales. If we are trying to get a real picture of the effect of selling it under forced sale or selling it in normal controlled circumstances we would still have to look at the 1985 value rather than the 1974 value?

Mr. McDonnell.—The value which I gave in the beginning was in fact the 1985 value prior to the write-down. The writing-down is an accounting technique. It is simply on the basis of conservatism. In other words, one does not overvalue ones assets.

Deputy Dennehy.—It must be a bit confusing for the public and that is where accountants like Deputy Ahern and others come into this. I agree with the policy, which appears to be very successful, of shifting the onus for the provision of factory space from the taxpayer to private developers. Has this policy saved money or do you have figures on that? In particular, were the factors on Model Farm Road and in the technology park funded by private enterprise or directly by the IDA?

Mr. Donlon.—I am sorry, Deputy, as I am not familiar with the situation on Model Farm Road, I cannot say anything about it.

Deputy Dennehy.—There are about five factories there and they appear to be different from the run of the mill factories. They seem to be of a very high standard and are different to any factories we saw previously. They were built after 1987-88 and I was wondering if they were privately funded?

Chairman.—Perhaps you could send a note to the Deputy on that matter, Mr. Donlon.

Mr. Donlon.—On Model Farm Road?

Chairman.—Yes.

Deputy Dennehy.—I was delighted to see that Tallaght got £3.5 million in grant-in-aid in 1989 because in 1984 it had dropped to zero. What was the reason for this increase? Was it as a result of getting private investors involved?

Mr. Donlon.—First, they would have embarked upon his following the White Paper on Industrial Policy where they were required to bring their holdings down to certain levels. There was also a decision that there should not be any direct State funding. You will see in the second column that there was quite a significant own-resource expenditure by the Industrial Development Authority in this activity. With regard to the question about what moneys were saved by the State as a result of the switch to a private development, the reality is that we were not providing funds.

The developments in this activity have been undertaken by private developers who provided additional extra money or input. I understand that in the period since the emphasis switched to the private sector, negotiations have been concluded by the IDA with private developers to construct 23 buildings representing 500,000 sq. ft. Six of these buildings have already been taken up for new projects and negotiations are continuing in the case of others.

Deputy McGahon.—Where are those developments located?

Mr. Donlon.—These are developments by private developers.

Deputy McGahon.—Do you have any idea of where they are located?

Mr. Donlon.—No.

Deputy Dennehy.—Some people may say the investment is too large in one area and too small in another area but I believe this policy is operating successfully. Most people agree that it is better to have private enterprise funding these factories rather than the State. I compliment you on that change and hope it will continue to be successful.

Mr. Donlon.—As I indicated, we are embarking upon a review of this policy. It has been the case that a major trigger or influence in a decision by an industrialist to locate here has been the availability of a particular site. We have seen two instances of this within the past 12 months where two major electronics developments were undertaken. These were able to happen immediately because of the availability of particular buildings, perhaps not suitable for the ultimate purpose but which were available at that time. We have decided to undertake a full review of this policy and, hopefully, the results of that will be available before I next appear before you.

Chairman.—I have a certain sympathy for you, Mr. Donlon, because of the position you are in. The term “forced sales” rather than the term “IDA sales” is used here but, presumably, when the Government told the IDA to raise £5 million, which they subsequently revised downwards to £3.8 million because of the way the sales were going, they did not say “these are the sites to be sold”. I presume they did not list them and say “we want you to sell a, b, c, d, e, f and g” but told the IDA they had to raise £5 million. Is that correct?

Mr. Donlon.—They were told to raise £5 million.

Chairman.—What bothers me about this matter is that they have put these sales into two categories, one they call “forced sales” and the other “own sales”. Yet, the loss on IDA sales was only somewhere between 10 and 20 per cent, on an historic cost basis, while the loss on what they call “forced sales” was between 70 per cent and a little over 80 per cent. I suppose a reasonable man could suspect that somebody took advantage of a Government directive to off-load land which they should not have been holding in the first place or disposed of assets under the cloak of a Government directive. I do not understand why there should be such a disparity shortly before land values started to increase. Did you ask the IDA why that was the case?

Mr. Donlon.—We, and the IDA, were concerned to ensure that whatever disposals did occur would take place over a reasonable spread of area, and every effort was made to do this on a regional basis. I think it would be the case that in their normal activities, where they have a piece of land on the market and there is no immediate urgency about disposing of it, they can hold out for a little longer than they can hold out in a case where they are required to actually raise a certain amount of additional funds. I would be very concerned if the situation were anything like you suggest or that if a directive is given their response might be, “we will get rid of this and that because they are of no use and we would love to have got rid of them before or, alternatively we will endeavour to show that we cannot raise money in this way”. I would be very concerned if that were the case but I have no reason whatsoever to believe that it is the case. Our understanding is that the lands which were disposed of were disposed of through the market and the best price possible was secured. As I said earlier, it may have been that when you are talking about a different use you are not going to get your money back.

Chairman.—I know that both Deputy Taylor and Deputy Rabbitte are offering but I want to suggest, by way of putting this issue in some sort of context, that we take up Deputy Flood’s proposal and recall Mr. Donlon on this matter when we have had a chance to read the report in detail. If you are sending reports to the Committee in future, Mr. Donlon, would you send them in advance so that members will have an opportunity to digest them? With due respect, I also think you should eliminate from your evidence to the Committee phrases such as “I imagine”, “I suspect” or “I suggest”. The Committee want to know what happened — this is our objective — to moneys that Dáil Éireann voted for these purposes. If it is necessary to do so, I suggest that you sit down with the chairman, the chief executive or whoever else in the IDA you need to sit down with so that you can get the precise background and details to this problem. I suggest to the committee that we get the Clerk to go through this morning’s examination and then send Mr. Donlon a list of questions which still need to be addressed arising from this examination. These questions will not be exhaustive and other questions may arise. This is an important matter and we need to go into it in considerable detail. Before I call Deputy Taylor and Deputy Rabbitte, may I ask the Committee if they are happy to pursue the matter in that way? Is that agreed? Agreed.

Mr. Donlon.—Where I have used those words, I am informed by the IDA that certain things happen. As I understand my position, I am accountable to you for the amount of money which was voted by way of grant-in-aid to the Industrial Development Authority. I understood my responsibility related to being satisfied that it was being used for the particular purpose intended and that in so far as the actual detail was concerned it would be a matter for the Authority to explain any questions that might arise in this regard. It is for that reason I can only, in certain instances, form an opinion here and I have got to qualify it because I do not know the precise detail.

I have been asked about holdings in Model Farm Road and Dundalk. It would be very difficult for me to brief myself to the extent that would enable me to answer questions of that detail.

Chairman.—We will send you a list of the questions that have not been answered this morning. As I said, these will not be exhaustive. It is your personal statutory responsibility to account to this Committee. This Committee have the power to surcharge you personally, Mr. Donlon. I am not suggesting that that will happen but in those circumstances you have to get it across to the people in the IDA that it is your responsibility and not theirs and that they are not going to get any more money from you or you will not receive any more money until they are in a position to satisfy us as to these matters. We do not want to get involved in the day-to-day running of the IDA but matters which have been raised here today about the way these sites were disposed of certainly give cause for concern. I think in implementing any Government decision, whatever Government are in office, agents of the Government have a responsibility to ensure that the Government get value for money in what they do. We will proceed along those lines.

Deputy Taylor.—When local authorities are dealing with such issues as the holding and selling of land and so on in their accounts they always take into the equation and calculation what they call “holding charges.” There is always a figure down for holding charges where land is concerned. Is that a factor the IDA have taken into consideration in the accounts you have and, if not, why not?

Mr. Donlon.—I presume that when they refer to holding charges they are perhaps talking about maintenance charges and such like.

Deputy Taylor.—Perhaps it relates to the interest on the money that would be relevant to the initial costs or things like that but the fact is it is always there. The accountants here would know more about it than I would but I have certainly seen it on every occasion in local authority accounts on land.

Mr. Donlon.—Looking at the IDA building operations divisions operating account, there are certain items under expenditure. Unfortunately, I cannot go into the detail other than it is here. Industrial building charges is one of the items listed here. I cannot say at this stage whether this relates to maintenance charges or interest charges.

Deputy Taylor.—Was the cost of this land when it was originally purchased and as it was held paid for in full from Government funds or was some part of it held on overdraft in the IDA’s accounts or in the Department’s accounts?

Mr. Donlon.—Over the past number of years there has been little or nothing of directly voted funds going into this activity. It has been for the greater part funded from the IDA’s own-resources.

Deputy Taylor.—In order to hold onto this land, having paid very substantial moneys for it over the years, have the IDA, the Government or the taxpayer been involved, in addition to what is stated here, in paying interest charges on any of these holdings?

Mr. Donlon.—On the basis that we started off on day one by voting money to the Industrial Development Authority for the purposes of property development, those funds were put in by the State. Obviously there is an interest charge in the sense that there is an interest charge accruing so far as the State is concerned.

Deputy Taylor.—Therefore, there is a factor there which is not really reflected in these accounts. In other words, the loss of the interest on that money over all these years is an additional loss which does not show.

Mr. Donlon.—I will have to explore this in greater detail but I think that would obviously have to be the case.

Deputy Taylor.—Who carried out the 1985 revaluation?

Mr. McDonnell.—It was done professionally by the IDA with outside assistance.

Deputy Taylor.—I have to say in that connection — and I do not know who was involved in doing it — that they appear, from the figures here, to have done a pretty poor job. When the figures they put down for the 1985 valuations are related to the sale price in 1988 — a matter of three years or longer — they do not bear a great deal of comparison. One should question these valuations — what was going on when the land was bought, when it was revalued in 1985 and when it was sold in 1988? In 1985 they valued a parcel of land at £546,000 and in 1988 it was sold for £70,000. How could a valuer value a parcel land at £546,000 in 1985 and then have it sold three years later for as little as £70,000? Looking down the list I see that similar situations have arisen not just in Ringaskiddy but all over the country. They valued land in Dungarvan at £136,000 in 1985 and it was sold in 1988 for £85,000. What are these valuers doing on these purchases, revaluations and sales? That matter warrants examination and calls for an explanation, even in the context of a fire sale. An explanation needs to be given for that drop in value. How could valuers do that and why did they do it?

Deputy McGahon.—I have a certain amount of sympathy for Mr. Donlon. This is a very complex issue and he is dealing with a very big agency——

Deputy Taylor.—I did not make the point as a criticism of Mr. Donlon.

Deputy McGahon.—I know that. May I suggest that, on future occasions such as this when many complex questions might arise on which Mr. Donlon may not be briefed, a representative of the IDA should attend to help us with our problems? I believe this should extend to all State agencies examined by this Committee.

Chairman.—In the first instance we will go through the Accounting Officer. We can note Deputy McGahon’s suggestion. We can put the question raised by Deputy Taylor in the schedule of questions which we will advance to you, Mr. Donlon before you next appear but I ask you to bear in mind that it will not be an exhaustive schedule.

Deputy Rabbitte.—I accept your view, Chairman, on how we should handle the issue and I will let my questions rest. Deputy McGahon made a good point. I certainly have some sympathy with an Accounting Officer who has to deal with such a fluid and changing situation, as necessarily an agency dealing with industrial performance must involve. Anybody who has dealt with the IDA is aware that the ballgame changes fairly dramatically from time to time. It is a matter of opinion and judgment whether the manner of the political relationship with the IDA is always the correct one or the one that the IDA itself would like. There are some rather dramatic examples of that in current politics. I am not inclined in this to the scandalous type of headline. It is very easy to be wise in hindsight and decisions made at a certain point in history in terms of industrial development may be seen to be not valid some years later. However, there are some questions that have not been adequately answered.

It would be naive, especially of the people around this table, to believe that these matters are always dictated by market forces. As we have seen recently the market can be interfered with and interventions can be made in the play of the market. I think it would be a bit naive to assume that in the case of all parcels of land everybody has conducted themselves in accordance with the free play of market forces. I am not so sure that that is the case. I should like to let this issue rest for today as we did not receive the document in time to study it fully. It is a very important issue for this country — I cannot think of a very much more important issue wider entirely than the scope of this Committee. I want to ask Mr. Donlon one question in relation to the notes he gave us: Why has the second review of industrial performance not been published?

Mr. Donlon.—I do not think I can. I hope it will be published in the near future. I cannot say any more than that.

Deputy Flood.—With regard to the revaluations that have taken place and then the consequential sale price achieved for the property disposals, are we not by implication saying that the annual report of the IDA for a particular year has been grossly distorted? Maybe the Comptroller and Auditor General would comment on that?

Mr. McDonnell.—I would not go as far as that.

Chairman.—Who is the auditor of those accounts?

Mr. McDonnell.—I am, Chairman. The exercise of writing down the property or any assets is one which is done with the knowledge available at the time and based, so to speak, on one’s expectations. In an accounting sense I do not think one could say it was distorted. It frequently happens that the realised price of assets may be more or less than the written down value, but because one realises a price which is less than the value arrived at scientifically at a particular time, I do not think one can say that the report at that point was distorted. One cannot look into the future. Deputy Taylor makes a point as to why there should be such a disparity.

Chairman.—Is Deputy Flood suggesting that we might call the auditor of the IDA before the Committee?

Mr. McDonnell.—An auditor is not competent to value the properties, so if he sees something is scientifically done on the best available information at the time, he would accept the professional view of a valuer.

Deputy Flood.—That is the point I am making. These revaluations took place in 1985. Therefore the 1984 report to all intents and purposes does not reflect the actual position with regard to property values at all because the following year, 1985, we decided to carry out a book operation and take a professional decision to reduce the values. In other words, in the audited accounts, in 1984 while they may have been professionally audited the valuation of the properties bore no relationship to reality at all. In the private sector any establishment that went to, say, a bank with a set of these valuations would be quickly told what to do with them, whereas in the public sector this does not appear to happen. It is decided in one year to reduce the value and go our merry way and even on those reduced values when we come to dispose of the land we find we get a much depleted price for the property even after depreciating it.

Mr. Donlon.—We need whoever is concerned to talk about the valuations, but the valuations would have been on the basis of the then foreseen use of the land, which was industrial purposes. As I mentioned earlier, in disposals we did not have such a situation where they were all disposed of for industrial purposes.

Chairman.—We have dealt with this for the moment. Mr. Donlon, we have marked this “Accounting Officer to be recalled” and will send you a list of questions. It will not be an exhaustive list. There will be other questions. We will get the clerk to go through the record today and pick out various questions that have not been addressed.

We go on to the Vote, subheads A.1 to F2, page 137. On subhead C.2 — Advertising and Publicity — there is substantial under-expenditure. Was there a cutback in advertising policy or programmes that year?

Mr. Donlon.—Specifically, there was a cutback in the Office of the Director of Consumer Affairs in the area of publicity.

Chairman.—Are there any other questions on that page? On page 138, subheads G.1 to N. 2 are there any questions?

Deputy McGahon.—I want to ask a general question. What is the present policy of the IDA in relation to building advance factories? Has that been discontinued or is it still a policy?

Mr. Donlon.—They are still building advance factories.

Deputy McGahon.—Obviously they are not doing it in my area.

Chairman.—Are there any other questions on that? We go to page 139, subheads O.1 to S. On subhead P — Commissions, Committees and Special Inquiries — when were the Motor Insurance Advisory Board established Mr. Donlon? Could you tell the committee how often they have met and reached any conclusions?

Mr. Donlon.—They were established in 1985. During the year of accounting they met on very few occasions. I do not have the number of occasions.

Chairman.—What was the objective of the board?

Mr. Donlon.—To advise on matters relating to motor insurance generally, including premium rates, loadings and availability of insurance cover.

Chairman.—Did they ever report?

Mr. Donlon.—They have furnished reports over the period.

Chairman.—A series of reports?

Mr. Donlon.—They would have, yes.

Chairman.—Have those reports ever been made public?

Mr. Donlon.—I do not think so.

Chairman.—Are the board continuing in existence? Are they continuing to function?

Mr. Donlon.—They are still on the books but there is little or no activity there at the moment.

Chairman.—I note that in regard to Companies Registration Office the estimated income under Appropriations-in-aid was £210,000, but they only realised £131,000. Does this signify that the number of registered companies diminished or that the companies office could not cope with the number of companies who were registering, or what was the problem?

Mr. Donlon.—A new service came on stream within the companies office in 1987. An effort was made to estimate what the actual income from that service would have been. Our estimate was, unfortunately, over-stated. This related to telex inquiries to the companies office and so on. The major part of the income of the companies office for the activities to which you referred are covered as extra Exchequer receipts.

Deputy McGahon.—On subhead O.1. — Export Guarantee Arrangements under the Insurance Act, 1953 — there is a grant of £10 million. What type of industries does that cover? What exactly is that?

Mr. Donlon.—That is expenditure in respect of claims arising under the export credit scheme. The figure for expenditure for 1988 would actually relate to the previous year’s expenditures — the expenditure of the last three quarters of the preceding year plus the first quarter of the following year.

Deputy McGahon.—How successful has that scheme been? Obviously it has been fully taken up, but has it been successful?

Mr. Donlon.—It has been a very successful scheme in its operation over the years. It has facilitated significant exports and whether one can say those exports would not have taken place in the absence of insurance is a question that remains, but on the basis that they were willing to pay for cover, one can only assume that they would not have taken place.

Deputy McGahon.—Does it benefit small business development, or is it more or less for the bigger industries?

Mr. Donlon.—There is no de minimis rule.

Deputy McGahon.—Is it right across the board?

Mr. Donlon.—Yes.

Chairman.—On the last occasion you were here Mr. Donlon, we were asking you about Iraqi insurance premiums and we said that we would come back to the matter when the cases which were before the courts had been dealt with. Are those cases still before the courts?

Mr. Donlon.—Yes.

Chairman.—We will be returning to those matters. We can note this Vote for now, unless there are any other questions. We will note the Vote for now, but we will be returning to the examination. Thank you very much, Mr. Donlon.

The witness withdrew.

The Committee went into private session.