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 Dáil Éireann An Coiste um Chuntais Phoiblí An Chéad Tuarascáil Eatramhach maidir le Tuarascáil Bhliantúil an Ard-Reachtaire Cuntas Caibidil 9.1 - An tIonad Taispeántas agus Seónna i mBaile Márta 2004 Dáil Éireann Committee of Public Accounts First Interim Report on the Annual Report of the Comptroller and Auditor Chapter 9.1 - The Exhibition and Show Centre at March 2004 Table of ContentsOrders of Reference Report of the Committee Findings and Recommendations Proceedings of the Committee Minutes of Evidence
Appendix 1 - Relevant Correspondence
-Letter of 21st November, 2003 from the Department of Agriculture & Food enclosing: -Letter of 7th January, 2004 from the Committee, to Mr. Dick O’Sullivan, General Manager, Punchestown Racecourse on issues relating to the Punchestown site. -Letter of 27th January, 2004 from Mr. Dick O’Sullivan, General Manager, Punchestown Racecourse, responding to letter of 7th January 2004. -Letter of 30th January, 2004 from the Committee, to Mr. John Malone, Secretary General, Department of Agriculture and Food, seeking an up-date on the position in relation to the drawing up and signing of the legal agreement between the Department and Punchestown. -Letter of 2nd February, 2004 from Mr. John Malone, Secretary General, Department of Agriculture and Food, responding to letter of 30th January 2004. - Letter of 30th January, 2004 from the Committee, to Mr. Brian Kavanagh, Chief Executive Officer, Horse Racing Ireland, seeking an up-date on the position in relation to the ratification of the agreement between HRI and Punchestown. -Letter of 2nd February, 2004 from Mr. Brian Kavanagh, Chief Executive Officer, Horse Racing Ireland, responding to letter of 30th January 2004. -Event Schedule for Punchestown Centre. -Guidelines for the appraisal and management of Capital Expenditure Proposals in the Public Sector, July, 1994 (Department of Finance). Orders of Reference of the PAC
Report of the Committee of Public Accounts on the Event and Exhibition Centre at Punchestown1. The facts1.1 Punchestown Racecourse submitted its initial proposal to the Minister for Agriculture and Food in November, 1999 seeking €6.9m in funding for a project in Punchestown to be known as the National Agricultural and Eventing Exhibition and International Show Centre (the Centre). The project comprised an indoor facility, entrance complex, a new stabling block and additional car parking and landscaping. 1.2 In June, 2000 a revised proposal costed at €12.78m was submitted by Punchestown. The revised proposal was for an indoor facility with a “clear span” construction which increased the cost of the facility, increased car parking, increased stabling costs and additional access roads. The chronological sequence of events is as follows;
Total Exchequer funding for the project amounted to €14.8m 2. Proceedings of the Committee2.1 The Committee has met on two occasions with the Accounting Officer of the Department of Agriculture and Food (6 November, 2003 and 16 December, 2003) and with the Chief Executive Officer of Horse Racing Ireland (HRI) (16 December, 2003). The transcripts of these meetings are appended and also available on the Oireachtas website. In addition, several of the Committee members paid an official visit to the facility and met with the Punchestown and Kildare Hunt Club authorities on 19 November, 2003. The Committee completed its consideration of the report in private session on 26 February, 2004. 3. The questions3.1 While there are many interlinked issues involved in this matter the main public accountability questions surrounding the Punchestown project are;
4. Examination of the questionsA. Evaluation of the project4.1 The guidelines for the appraisal and management of capital expenditure (Department of Finance, 1994, appended) are the appropriate guidelines to apply in determining whether or not a project merits Exchequer funding. The Committee notes that these guidelines are currently being reviewed, however, in the context of this project which was initiated in 1999 the existing guidelines are the guidelines to be applied to this and all other projects until such time as they are changed. These guidelines state that a preliminary appraisal followed by a detailed appraisal are the first two necessary stages to evaluating a project. 4.2 The Accounting Officer gave evidence that there was a belief in his Department of the need for such a Centre, that there was consultation with interested parties, that the project was a public good in nature and was a once-off project. He also gave evidence that the project was evaluated “against a number of criteria, including the suitability of Punchestown, whether alternative sites could be used and the likely events which would take place” in the Centre. The Committee notes that no evidence was adduced of a formal assessment based on these criteria or of any public statement of intent at any time by the Department of the need to address this perceived infra-structural gap. No business or marketing plan was sought by the Department from the promoters to assist it in its evaluation. The Committee is of the view that consultation with parties who might potentially use the facility but who have no financial interest in the project could not be considered as a substitute for a formal appraisal as required by the guidelines. The Committee notes the evidence of the Accounting Officer in relation to the public good and once-off nature of the project but considers that such characteristics do not of themselves obviate the need for a more thorough assessment of expenditure proposals of this nature. No evidence was adduced either during the audit by the Comptroller and Auditor General or the Committee’s examination of the Accounting Officer that an evaluation appropriate to a multi-million euro project and in keeping with the 1994 guidelines had been carried out. 4.3 The Committee notes that the submission of the revised proposal which effectively doubled the cost of the project did not appear to cause undue concern either in the Department of Agriculture and Food or in the Department of Finance or to cause a rethink of the way in which the project was being assessed. The Committee believes that the evaluation of the project was inadequate overall. 4.4 The Department of Finance in its evidence has argued that it has no function in evaluating such projects. However, it is not evident to the Committee how the Department of Finance ensures that projects submitted to it for approval have been evaluated under the 1994 guidelines and that such evaluations as have been done are adequate. The Committee would like to see greater clarity on the role of the Department of Finance in this regard. B. Protection of the State’s interests4.5 This section deals with two separate agreements; firstly a corporate restructuring agreement between HRI and Punchestown and secondly, the legal agreement governing the disbursement of funds to Punchestown to build the Centre. Corporate arrangements 4.6 The Kildare Hunt Club owns the land at Punchestown. It carries on its business through three operating companies in which the Hunt has 100% of the share capital. It has leased 250 acres of its 466 acre land bank for 250 years to Punchestown Development Company Limited which owns the racing facilities at Punchestown. The 250 acres includes the race course, associated car parks, entrance facilities, stands, enclosures and stables. A sister company, Blackhall Racing Company manages the events that take place at the racecourse. A third company Punchestown Enterprises Company Limited owns and operates the Centre. 4.7 Punchestown Holdings Limited is the proposed new holding company for the three trading companies. It will be owned, by an agreement, on a 50/50 basis by the Kildare Hunt Club and HRI. This joint venture has been established in an interim capacity. The agreement provides that on repayment by the KHC of all loans advanced by HRI at any time before 31 December 2016, full ownership of Punchestown Holdings Limited would revert to Kildare Hunt Club. Failure to repay by that date would see the loans converted to equity and ownership of Punchestown Holdings Limited transfer to HRI. A loan of €1.65 million from the Irish Horseracing Authority (IHA), now the HRI, was paid to Punchestown in 2001. Further funding from HRI comprising a €2.5 million loan is subject to the clarification of certain tax issues with the Revenue Commissioners and the modification of certain leases. When these matters are resolved this would leave a total of €4.15 million to be repaid by Punchestown by the end of 2016. 4.8 The Committee believes that the involvement in this way of the HRI, whose accounts are audited annually by the Comptroller and Auditor General, will strengthen the protection of the State’s investment into the future. However, the involvement of the HRI which was not foreseen as part of the original project is, nevertheless, beneficial. Nonetheless, the Committee believes that for good governance reasons the restructuring agreement should be fully implemented as soon as possible. The legal agreement 4.9 The central question here is the capacity of the legal agreement entered into in August 2000 to protect the State’s investment in the Centre into the future. 4.10 The funding for the Centre was secured with an exchange of letters between the Department and Punchestown, as distinct from a specific corporate entity, setting out the grant conditions and acceptance thereof in August 2000. The Accounting Officer has stated in evidence that this form of agreement was consistent with the normal type of agreement used by the Department in awarding grants. He accepts that many of the conditions in the agreement related to the project and its completion. To this extent the Committee is of the view that the existing legal agreement only partially protected the State’s interests in the matter. It would not appear to be comprehensive enough to recognise the complexity of the Punchestown corporate structure which existed at the time of the agreement. 4.11 The Committee also notes that the August 2000 agreement provided that there would be no call on State funding for construction costs in excess of €13.3 million. By acceding to a request from Punchestown in October 2001 for an extra €1.5 million to complete the project, the Department of Agriculture effected a de facto amendment to the agreement. 4.12 In addition, it would appear that only the land on which the Centre itself is built has been leased to the company operating the Centre viz. Punchestown Enterprises Company Limited. The land on which the ancillary facilities were built remains as an asset of Punchestown racecourse. 4.13 The Committee is of the view that there was a failure to fully secure the State’s interest by way of an appropriate legal agreement which governed both the arrangements for the construction of the project and its viability going forward. Following the concerns expressed by the Comptroller in his report the Committee notes and welcomes the fact that the Department has consulted with its Legal Services Division with a view to concluding a more detailed legal agreement. The current position as at the time of writing is set out in the appended correspondence received from the Department on 2 February, 2004. The Committee would wish to see the legal agreement completed and signed as soon as possible. It is concerned that this has not already been done given that this weakness was identified in the initial audit of the 2002 Accounts. C. Cross benefits of the project facilities to the racecourse4.14 Some synergies have developed arising from the building of the Centre on the Punchestown racecourse site. The entrance complex, car park and stables are of benefit to the racecourse on the 18 days of racing which take place there every year. Evidence was given that a charge is levied by the Centre on the racing company for the use of the Centre’s ancillary facilities on race days. Equally, Mr Kavanagh, Chief Executive Officer, HRI stated in evidence that a management charge was levied by the Punchestown management on the Centre for its management time spent in running the Centre. The location of the Centre in Punchestown gave access to the adjacent land in Punchestown for cross country and eventing purposes. 4.15 The Committee sought evidence as to how these transactions were dealt with among the companies which have an interest in Punchestown. Punchestown have confirmed in writing the details of the internal charging system in operation. The correspondence is set out in this report. This additional information should help in analysing the project and in clarifying the issue of cross benefits. 4.16 One further point emerged from the visit of the Committee to Punchestown on 19 November, 2003. The Centre is considered by Punchestown management to be phase four of the overall development of the facilities at Punchestown. D. Value for moneyProject location 4.17 The location of the project in Punchestown is to some extent a reward for the initiative shown by the proposers for putting forward the proposal in the first instance. The Department did not advertise the availability of public funds for this type of project. The Committee notes the evidence of the Accounting Officer that the Punchestown proposal was the only viable option. It might be argued that the principles of fairness and transparency which underpin public expenditures would demand that all parties should at least have been made aware of the potential availability of public money for such a project through a general call for proposals. In that way there is a higher probability that value for money could be maximised. This is arguably more important in a project which has been called a “once-off” project as this in all probability means that no such other similar projects will be funded in Ireland. Construction costs 4.18 The two building contracts viz. (i) the Centre and (ii) the ancillary facilities, were the subject of competitive tenders and the lowest tender was accepted in each case. The same contractor was successful in both competitions. The lowest tender for the centre came in at about 10% higher than the estimate provided in the cost plan. There were no overruns on the construction contracts. The Committee notes the report of the Comptroller and Auditor General which has found that proper tendering procedures were observed in connection with the placing of the contract and that the Department had satisfactory controls in place in relation to the processing of payment claims in terms of on-site inspections and detailed administrative checks. Usage of the Centre 4.19 Another way of assessing the need for the Centre is to look at the agricultural and equestrian events that have been held or are to be held at the Centre. The usage of the Centre for the purposes for which it was built would strengthen the view that the need for the Centre was not properly evaluated. 4.20 It appears from the evidence before the Committee that the Centre was hardly used at all for the first year after it was built. According to information supplied on past and forthcoming events it appears that about one-third of the use of the Centre is for agriculture and equestrian purposes. Many of the remaining events could as equally have been held elsewhere in Ireland but were taken into the Centre as revenue raising events. General 4.21 The Committee notes the view of the Accounting Officer that the value of this project should be measured over the long term and that over that term it will prove to be a valuable asset to the agriculture sector. In the absence of a business or marketing plan for the project or a formal evaluation the Committee is not in a position to take a view on this matter at this time. Findings and RecommendationsThe Committee of Public Accounts finds and recommends;Specifically that
Adopted by the Committee of Public Accounts  Proceedings of the CommitteeDéardaoin 6 Samhain 2003
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Deputy S. Ardagh, |
Deputy J. Higgins, |
Deputy D. Boyle, |
Deputy J. McGuinness, |
Deputy P. Connaugton, |
Deputy M. Noonan, |
Deputy J. Curran, |
Deputy P. Rabbitte. |
Deputy S. Fleming, |
Deputy J. Perry in the chair.
Public Session
Mr. J. Purcell (An tÁrd Reachtaire Cuntas agus Ciste) called and examined.
2002 Annual Report of Comptroller and Auditor General and Appropriation Accounts.
Vote 31 - Department of Agriculture and Food - Chapter 9.1.
Mr. J. Malone (Secretary General, Department of Agriculture and Food) called and examined.
Chairman: I must mention relevant correspondence of 6 September 2003 from Mr. Pat Geoghegan of the Cappagh Farmers Support Group concerning the Askeaton investigation in County Limerick. Witnesses should be made aware that they do not enjoy absolute privilege. On 2 August 1998, section 10 of the Committees of the Houses of the Oireachtas (Compellability, Privileges and Immunities of Witnesses) Bill 1997 granted certain rights to persons identified in the course of committee proceedings. These rights include the right to give evidence, to produce or send documents to the committee, to appear before the committee either in person or through a representative, to make a written and oral submission, to request the committee to direct the attendance of witnesses and the production of documents and to cross-examine witnesses. For the most part these rights may only be exercised with the consent of the committee. Persons invited before the committee are made aware of these rights and any person identified in the course of proceedings who is not present may have to be made aware of these rights and provided with a transcript of the relevant part of the committee’s proceedings if the committee considers it appropriate in the interest of justice. Notwithstanding this provision in legislation, I remind Members of the long standing parliamentary practice to the effect that Members should not comment on, criticise or make charges against a person outside the House either by name or in such a way as to make him or her identifiable. Members are also reminded of the provision within Standing Order 156 that the committee shall refrain from inquiring into the merits of a policy or policies of the Government or a Minister of the Government or the merits of the objectives of such policies. I ask Mr. Malone, Secretary General of the Department of Agriculture and Food, to introduce his officials.
Mr. John Malone: Mr. John Fox, Mr. Aidan O’Driscoll, Mr. Jim Beecher and Mr. Seamus Healy are all assistant secretaries in the Department. The officials from the Department of Finance are Mr. Brendan Ellison, Mr. Robert Carey and Mr. David Hurley.
Chairman: I ask Mr. Purcell to introduce Chapter 9.1.
Mr. John Purcell: Chapter 9.1 of the Report of the Comptroller and Auditor reads:
9.1 Exhibition and Show Centre at Punchestown
The Initial Proposal
In November 1999 the Minister for Agriculture and Food (the Minister) received a proposal from the trustees and executives of Punchestown Racecourse (Punchestown) seeking funding for a development project. The project comprised an indoor exhibition facility, an entrance complex, a new stabling block, as well as additional car parking and landscaping. It was to be known as the National Agricultural and Eventing Exhibition and International Show Centre. Punchestown indicated that on the basis of an exercise carried out by its Quantity Surveyors, costs would be €6.9m. The level of State support sought was not indicated. On 19 January 2000 Departmental officials recommended to the Minister that funding of €6.9m should be given to Punchestown representing 100% of the anticipated construction costs. The Minister accepted the recommendation and on 20 January requested the Minister for Finance to provide additional funds of €6.9m in the Department’s Estimates for 2000 to finance the proposal. The Minister for Finance acceded to the request on 27 January 2000.
The Revised Proposal
On 6 April 2000 Punchestown informed the Department of Agriculture and Food (the Department) of proposed changes to the project which would impact on costs, and on 2 June 2000 submitted a revised proposal costing €12.8m. The Minister accepted the revised proposal and on 23 June 2000 wrote to the Minister for Finance requesting additional funding of up to €6.4m for the project. The Minister for Finance agreed to the request for additional funding on 7 July 2000.
Table 9.1 compares the costs of the original and revised proposals.
Element |
Nov 1999 € |
June 2000 € |
Exhibition and Event Centre |
3,174,000 |
6,488,000 |
New Stables Enclosure (147 stables + 7 rooms + toilets) |
1,270,000 |
2,013,000 |
Entrance Complex-incorporating Entrance Canopy, Garda Rooms, communications/press room and Creche |
1,143,000 |
1,130,000 |
Landscaping - incorporating grass arenas and all-weather cross country course |
126,974 |
317,435 |
Allowance for Drainage and Site Services |
63,487 |
126,974 |
General Hardstanding Parking |
63,487 |
----- |
Roads, Access etc. |
----- |
520,593 |
Sandstone to Parade Ring |
----- |
188,556 |
Client Direct Items |
----- |
126,974 |
Contingency Allowance and Inflation |
317,435 |
507,895 |
Design Team Fees |
761,843 |
1,363,937 |
Total (Excluding VAT) |
6,920,226 |
12,783,364 |
The main changes to the first proposal were:
Consulting the European Commission
On 26 April 2000 the Department wrote to the European Commission seeking its opinion on whether the Department’s proposed financing of the centre constituted State Aid within the meaning of Article 87(1) of the Treaty of Rome. The Department said the proposed financing should not be considered a State Aid because:
On 10 May 2000 the Commission said it was satisfied that State Aid was not involved.
Agreement and Conditions
An agreement was made with Punchestown on 9 August 2000 by way of an exchange of letters. The agreement provided that:
Further Contributions to Finalise the Project
In October 2001 Punchestown sought a further €1.5m mainly for works to satisfy the planning requirements of Kildare County Council. This was sanctioned by the Minister for finance on 31 January 2002 bringing total State funding for the project to €14.8m.
Audit Concerns
The audit established that proper tendering procedures were observed in connection with the placing of contracts, and that the Department had satisfactory controls in place in relation the processing of payment claims in terms of on-site inspections and detailed administrative checks. However, I did have concerns as to the adequacy of the evaluation carried out by the Department on the project, and some apparent weaknesses in the agreement from the point of view of adequately protecting the State’s interests.
Evaluation of Project
My concerns in relation to the evaluation of the project centred on whether the project had been comprehensively evaluated from a cost/benefit viewpoint prior to its approval – in particular if it met the criteria set down in the guidelines issued by the Department of Finance for the evaluation of major capital projects. The fact that the scale of the development changed soon after its initial approval lent weight to my concerns. Accordingly, I sought the views of the Accounting Officer in relation to these and other associated matters. In response to my enquiries the Accounting Officer informed me that the project was considered worthy of support because for many years the Department had been aware of the need for a facility of international standard for the holding of agricultural shows and displays which could attract significant agricultural events to Ireland. Such a facility would be part of the infrastructure of the industry. The project put forward by Punchestown fully met the Department’s objectives and in view of its benefits to the agricultural sector it was, in effect, a national facility and as such was considered worthy of 100% funding. The 100% level of support given to the project (apart from the site) was agreed because the Department was aware that the Centre would require a considerable amount of finance to meet running costs such as maintenance, insurance, reinvestment etc. As Punchestown was obliged to operate the facility as an Event Centre indefinitely and were operating in an area where profits were difficult and as they were not allowed to dispose of the property, the running costs would be a constant liability on the organisation. In the circumstances the arrangement whereby the Department would fund the construction costs and Punchestown would use its own resources and considerable expertise to run the project was considered a good partnership arrangement, and one from which the agricultural industry as a whole would benefit. The Department was further satisfied that anything less than full funding for the construction of the facility would mean that the project would not proceed and the potential benefits to the agriculture sector and the country, in terms of attracting certain prestigious equine events in particular, would be lost. In relation to the decision to accept the more expensive second proposal the Accounting Officer stated that the Department had for some time been aware of the need for a centre for agricultural events. The evaluation of the two Punchestown proposals had focused on the extent to which the proposals met the Department’s needs. Under both proposals Punchestown would provide the site and would run the Centre thereafter. The initial proposal was the one which Punchestown were at the time prepared to apply their resources and expertise to running. Having given the project due consideration it was decided that as it met the Department’s basic requirements financial support was justified. Having obtained approval in principle, the promoters set about progressing their proposals. They subsequently indicated that following more detailed consideration of the needs of the proposed Centre which included inspection by the design team of similar facilities in the UK, Continental Europe and North America they proposed to make some structural and costly changes to the design of the main building in particular. The finalised proposal provided for the holding of a wider range of activities and made the centre more user friendly. Its clear span interior made it suitable for the holding of a wider range of machinery shows than could be accommodated in the first proposal and the general specification was also upgraded to cope with internal climate control. The finalised proposal was the Department’s preferred option if funding could be made available. The Department did not accept that the evaluation of the first proposal was not as thorough as it should have been. In the event that funding could not be made available for the revised more costly proposal the Department would have funded the original proposal as it met its basic need for a centre. As to why the Department did not obtain independent technical advice on the proposals, the Accounting Officer stated that his Department was aware, and had sight of, the architectural and engineering advice obtained by Punchestown and all their plans. The Department had applied its own considerable experience and expertise to evaluating that advice and did not consider it necessary to acquire and pay for further independent advice. The Department had also ensured that proper procurement procedures were undertaken by Punchestown as the project progressed to ensure that the best value for money was obtained. In relation to research carried out by the Department on the need for the facility the Accounting Officer stated that the Department was keenly aware, through its on-going interaction with societies such as the Pedigree Breed Societies and with the Irish Cattle Breeders Federation (ICBF), of the need for a facility such as the Event and Exhibition Centre for non-equestrian events. It was also aware that most of the Pedigree Cattle Breed Societies were linked to and participated in annual international and world congresses, fora, shows, competitions and sales, some of which it felt could be attracted to Ireland at reasonable intervals if the facilities were available at a suitable venue. It was further aware of the work being done through ICBF and other breed societies using Exchequer and EU co-financed Structural Funds to improve and market quality cattle breeding, and was anxious to complement that work by having the appropriate international status facilities in Ireland to promote the end products. He stated that in the equine eventing area Ireland had been the lead stud book in the World Breeding Federation evaluations for many years, and in this context it was considered important to underpin this success with a suitable modern eventing facility in Ireland. Formal research had not been carried out by the Department as it was considered that it already had sufficient information on these issues. The larger organisations had been informally consulted, they supported the venture and indicated that they would use the facility when it became available, and Punchestown had carried out research in relation to the Centre’s equestrian activities and undertook a feasibility study on the tourism aspect. In relation to the non-submission by the promoters of projections of costs and revenues for the Centre, the Accounting Officer stated that the principal issue for the Department was the provision of a national agricultural eventing and exhibition centre for the farming sector. While the Department was naturally concerned about its long-term viability it was satisfied that this could best be achieved as part of the wider Punchestown complex. As to whether any attempt was made to quantify the financial benefits of the project to the farming community and the economy generally, the Accounting Officer stated that the Centre was envisaged as a public utility for the use and benefit of the agricultural industry. It was seen therefore as a public good development, the benefits of which were long term, reputational, and marketing through standards and presentation, and could not readily be measured in immediate and direct financial terms. On the question of why no enquires had been made by the Department as to whether there may have been other promoters willing to provide such facilities at a possibly lower cost to the Exchequer, the Accounting Officer stated that the central and accessible location of Punchestown, its spacious setting, the synergies to be derived from the racecourse, its proven expertise in eventing shown through its successful hosting of a 3 day Eventing Competition since 1968 uniquely made Punchestown the ideal location for the Centre. Ireland had lost out in bringing the prestigious World Equestrian Games here in 1999 and an application had already been submitted to stage the 2003 European Eventing championships. As Punchestown was recognised as the premier location for a National Eventing Centre it would have been unthinkable to have located it anywhere else. No other promoter had made an approach to the Department to provide such facilities, which was understandable in the context of the scale of the facilities required, many of which were already available at Punchestown. The Accounting Officer stated that the Department operates a number of capital grant schemes under the National Development Plan. Applications under these schemes were subject to a thorough assessment and evaluation process. Detailed procedures manuals were in place for each scheme, and he stated that he was satisfied that the processes and procedures within the Department for processing capital grant applications were thorough. The Punchestown project was very much a “once off and not part of any particular scheme, and the project work and all grant payments relating to it had been subjected to particular and intense scrutiny. He also stated that all of the capital works relating to the project had been completed and that the centre had commenced operating. While it was still early days, demand for the Centre had been reasonably good, and feedback received by Punchestown had been positive. In its first 10 months of operation to the end of September 2003 the centre would have hosted an average of one event per month, the majority of which were agricultural in nature. Demand for the centre was expected to increase as it became established, and in September the highly prestigious European Eventing Championships which came around every 3 years, and the Endurance Championships would be held there. In view of the fact that the Department was required by Government Financial Control Procedures to obtain the approval of the Department of Finance for the funding it provided for the project, I asked the Accounting Officer of the Department of Finance whether his Department was satisfied that the project proposal had been adequately evaluated by the Department and that the guidelines laid down by his Department on the evaluation of capital projects had been followed, and whether the withdrawal by the Department of its first proposal for funding of €6.9m and its replacement by a proposal for funding of almost double the original amount, raised any concerns within his Department on this question. The Accounting Officer of the Department of Finance stated that it was the responsibility of the Department of Agriculture and Food to formulate, evaluate and deliver on projects such as Punchestown, and to ensure that proper procedures were in place to do so in a transparent, responsible, and accountable manner. In doing this they were assisted by and must have regard to appropriate guidelines (including the 1994 Capital Appraisal Guidelines), the formulation and dissemination of which were the responsibility of his Department.
The Agreement
My concerns in relation to the agreement centred on the fact that the conditions governing the State’s financial support were covered only by an exchange of letters and had not been referred to the Department’s legal advisers to ensure that they were properly constructed and legally sound. I also noted that the funding had not been made conditional on a certain minimum number of agricultural and equestrian related events being held there and that the agreement was silent as to a minimum length of time for which the Centre must operate. Moreover, the agreement did not cover the matter of payment by the racecourse company for use of the facilities of the centre including the stables and entrance complex. I also felt that the wording in the agreement left some doubt as to whether the Department had the power to prevent the holding of events of a non-agricultural and non-equestrian nature, as intended, if it so wished. The Accounting Officer stated that any concerns which the Department had with the holding of non-agricultural and non-equestrian events were mainly to ensure that they did not prevent, from a timing or structural viewpoint, the holding of the type of events for which the Centre was funded. The Department was satisfied that should it wish to do so, it could prevent the holding of certain types of events. He also stated that as the Department considered it had the power to veto non-core events it was not considered necessary to seek an agreement as to number and type of events in the Centre. With regard to the minimum period during which the facility must be operated, he cited the Food Industry where the Department has operated a capital grant system for many years, and where beneficiaries are required to have the grant-aided facilities operated for the purpose for which they were funded for a period of at least eight years. However in the case of the Centre at Punchestown it was decided to be more restrictive and by not imposing a limit the requirement was left open ended, which meant that the facilities must be made available indefinitely for the purpose for which funded, and that this reflected the 100% grant paid. The Accounting Officer informed me that, although not incorporated in the agreement, arrangements had been put in place to cover payment for use of the centre’s facilities by companies in the Punchestown group. However the Accounting Officer also informed me that in the light of my concerns on possible deficiencies in the agreement, he had referred it to the Legal Services Division of the Department for legal consideration. He understood that a new agreement may be considered which would where possible, address my concerns, and that Punchestown had indicated that they were willing to enter into a new agreement if the earlier one was found to be deficient and that the new agreement would be completed by one or all of the three companies within the Punchestown organisation, if required. This is the sole reference in my report to the Department of Agriculture and Food this year, which is good news from the Department’s viewpoint. The initial proposal for this development project was made in November 1999. The proposal was to fund a project - an exhibition and show centre at Punchestown racecourse - costing €6.9 million. It was approved in January 2000 by the Minister for Finance, having been recommended by the Minister for Agriculture and Food. However, a revised proposal was submitted in June 2000, costing €12.8 million, and approval for this amount, plus another €0.5 million or so to allow for miscellaneous unforeseen expenses, was given a month later. That was not the end of it: in October 2001 Punchestown sought a further €1.5 million to finish the work. This was approved by the Minister for Finance in January 2002, bringing total State funding for the project to €14.8 million. My main concern about this project was that the guidelines set down by the Department of Finance for the appraisal of proposed capital works were not applied, even though it was fully funded by the Exchequer. Normally if a revised proposal costing almost double the amount originally envisaged is received a few months after the initial approval alarm bells would ring in both Departments, but on this occasion it was more akin to pushing an open door. There was no evidence of critical cost-benefit evaluation being carried out at any stage of the project. I put this to the Accounting Officer and, as we can see from the report, he stated that the centre was envisaged as a public utility for the use and benefit of the agriculture industry and was therefore seen as a public good development, the benefits of which were long term, reputational and marketing, and could not be readily measured in immediate and direct financial terms. There is something in what he says but this does not obviate the need for thorough appraisal to avoid the risk of paying too much for what was seen as a desirable facility. I was glad to receive his assurance that under the capital grants scheme operated by the Department under the national development plan, projects and grants are subject to a thorough assessment and evaluation process and that the Punchestown project was a once-off in this regard. I also had some slight reservations about the nature of the agreement drawn up to cover the State’s interests. The Accounting Officer has referred this matter to the legal services division of the Department for any necessary action. To end on a positive note, the audit confirmed that proper tendering procedures were observed and that the Department exercised satisfactory control over the processing of payment claims by way of on-site inspections and detailed administrative checks.
Mr. John Malone: It had been generally accepted in the agriculture sector and also in the Department for a number of years that there was a need for a facility of international standard for the holding of agricultural shows and displays which could represent our industry both nationally and internationally and in addition attract significant international agricultural events here. The proposal submitted to the Department by Punchestown was timely in that it addressed this gap in the overall infrastructure required to promote the industry. The proposal was considered against that background. The exhibition and show centre at Punchestown is now complete and the facility is in operation. This centre is a well serviced facility. This, together with its location, easy access, entrance facilities for receiving large crowds and extensive parking, makes it a flagship facility for the whole agriculture industry. It enables the sector to display the quality of the Irish product in an appropriate setting of international standard and has the ability to accommodate the bigger events in the international agricultural calendar, such as those connected with sport - horse event competitions and cattle breeding and livestock shows - as well as machinery displays, associated congresses and forums and other projects agreed from time to time by the Department. The Department is satisfied with the project and how it has operated to date. Today the public expects high standards from public facilities. Any exhibition or show centre which does not deliver a sufficiently high standard of accommodation and ancillary services will simply fail to attract important events. This fact was very much to the fore in the Department’s consideration of the Punchestown proposal. The Department was prepared to fund the first proposal submitted by Punchestown in November 1999. However, the Department is satisfied that it was the correct strategy to fund the revised proposal submitted in June 2000, subject to the availability of the funding required, as this resulted in the delivery of a superior facility which allowed for a wider range of uses, albeit at a higher cost than that originally envisaged. This was the choice we had to make at that time. The facility constructed at Punchestown has proved to be a major success with exhibitors and patrons alike. Since it opened, the centre has successfully hosted a wide range of events, from the high profile European event championships and endurance championships to a pony club summer camp. A significant number of events have already been booked at the centre for 2004. The Department is satisfied that Punchestown has met and continues to meet the conditions of the grant agreement. The Comptroller and Auditor General has commented on the fact that funding was not made conditional on a certain minimum number of agricultural and equestrian related events being held there. The Department has the facility to limit non-core activities should the need arise and this has not been contested by Punchestown. The Department’s primary concern in this regard is to ensure that non-core events do not from a timing or structural viewpoint prevent the holding of the type of agricultural events for which the centre was funded. It must be realised that the holding of a wide range of events has been a part of the activity at Punchestown over the years. The venue has always been a site for popular music events, long before the construction of the centre. A limitation on non-core activities per se would serve no useful purpose but could prove to be an inhibitor to Punchestown in developing the role of the centre and indeed developing Punchestown in general. The project in question constituted a once-off investment in this country’s infrastructure for the promotion of agriculture and was considered to be a public good development. No alternative sites were put forward. The proposal was carefully examined and the Department consulted informally with the larger livestock and bloodstock organisations which indicated their support for the venture and their intention to use it when it became available. I draw the Committee’s attention to the Comptroller and Auditor General’s comment: "The audit established that proper tendering procedures were observed in connection with the placing of contracts, and that the Department had satisfactory controls in place in relation the processing of payment claims in terms of on-site inspections and detailed administrative checks.". With regard to the type of agreement entered into with Punchestown, the Department wrote to Punchestown on 1 August 2000 agreeing to fund the project subject to 17 detailed conditions. A number of these conditions were standard clauses used by the Department in other capital grant cases and had stood the test of time. On 9 August Punchestown formally wrote to the Department accepting the Department’s offer of funding subject to the conditions set out. Given the standing of Punchestown, this formal exchange of letters was considered by the Department and, I believe, also by Punchestown, to be a legally binding agreement and the conditions enforceable. However, in view of the reservations expressed by Mr. Purcell this aspect is being further examined by the Department’s legal services division. A new agreement is now being worked on which I hope will address Mr. Purcell’s concerns. This project did receive substantial funding from the Department of Agriculture, Food and Rural Development, €14.6 million. However, there is no doubt that this particular project would not have gone ahead without this degree of subvention. Punchestown has met all its obligations under this project: it provided a valuable site in a very suitable location, it managed the project and ensured its completion and it has taken responsibility for the day to day running of the enterprise. These are very important contributions in a project of this nature. The project is now in place and up and running. Feedback received to date has been positive and I am satisfied that it will prove to be a great success over time.
Chairman: The agreement was based on an exchange of letters. Was there an official agreement?
Mr. Malone: Yes. In our view the letter, which is a detailed one, was a legal agreement. Punchestown wrote back to us conveying its acceptance of those terms and conditions, but in light of the points raised by Mr. Purcell-----
Chairman: Do you have a copy of the agreement?
Mr. Malone: Yes, we can give you a copy.
Chairman: It seems quite extraordinary that no evaluation was carried out by the Department of Finance on this project.
Mr. Malone: The project was examined in detail by the Department of Agriculture and Food. As I explained, we had felt for a number of years that there was a gap in the infrastructure, mainly related to the change in the RDS, with which members will be familiar - it used to be a well developed exhibition centre but its role has changed in recent years. This meant there was no centre where large events of this kind could be held. We had a view of the need for the project. We also had a good understanding of the need from the equestrian side. There is a predetermined set of events either every year or every few years. In addition, we consulted with the livestock sector, mainly the breeding societies. The Department had a clear view of the need for this facility. The proposal was submitted in accordance with normal procedures to the Department of Finance. We sought a policy decision from that Department and we received it. That is as much as I can add.
Chairman: What was the cost per square foot?
Mr. Malone: I would have to calculate that. It is a fairly large events centre.
Chairman: I know the size, but what was the cost per square foot?
Mr. Malone: The facility is 7,500 sq. m. and there are also entrance facilities. We can calculate the cost - it would be €6.4 million divided by this figure.
Chairman: It is a lot more than €6.4 million, is it not? We are talking about the total cost.
Mr. Malone: We are talking about stables and entrance facilities.
Chairman: That is the whole development?
Mr. Malone: That is the whole development. I do not have the size of the full development here but I can get that figure.
Chairman: Are the ancillary services all part of the establishment? If one did a calculation one would be quite surprised.
Mr. Malone: It is quite high.
Deputy Ardagh: When I read Chapter 9 of the Comptroller and Auditor General’s report it read like a good cowboy story. The Punchestown boys ride into town, strut their stuff and say they are building a corral out on the ranch for some cattle and horses but it will be good for the town. There are a couple of John Waynes among them so they inveigle their way to the open safe and get almost €7 million. They ride out, have a look at things, scratch their heads and say that was easy why not try again? They do that and get another €7 million less than two months later, which is good going. The chapter shows up the difference in emphasis between the Secretaries General of Departments who look at outputs versus the Comptroller and Auditor General who looks at the evaluation and the controls. In this instance the Secretary General has told us some of the outputs. It was a bit of a gamble and it paid off. It is a pity the committee did not have an opportunity to visit Punchestown prior to this. The RDS was caught for space but how much more advantageous was it to have a venue for horse shows in Punchestown rather than the RDS? The Dublin Horse Show is still held in the RDS so what other facilities are used in Punchestown?
Mr. Malone: The RDS has changed fairly dramatically in recent years. The amount of space available is limited and the concept of bringing animals, whether cattle or horses, into the middle of the city is no longer acceptable. As far as I know, the Dublin Horse Show is the only real livestock event held in the RDS. The difficulty we had was that the nature of the RDS has changed. There was clearly a gap in the infrastructure. Facilities such as this exist in other countries in various parts of Europe.
Deputy Ardagh: What events have been held in Punchestown that could not otherwise have been held in Ireland?
Mr. Malone: The three-day equestrian event was very successful. It is the biggest of its kind in Europe and it was held there last September.
Deputy Ardagh: How much money would that bring into the country?
Mr. Malone: It would have brought in several million euro.
Chairman: Is it an annual event?
Mr. Malone: It is held every three years. There is also an annual local event, the Farm Machinery Show. A large exhibit of farm machinery used to be held at the RDS.
Deputy Ardagh: The ploughing competitions were held in other locations.
Mr. Malone: The National Ploughing Championships moves from one location to another. It is a different event, not an exhibition and it has developed out of a ploughing competition.
Deputy Ardagh: Apart from the three-day event, what other events have been held there?
Mr. Malone: The Irish Charolais Cattle Breeds Society held an event there. There is an event held there almost every month, the Farm Trade Machinery Show, pony club summer camp, the European Eventing Championships and the European Endurance Championships - which as I said was a big event - and an Agri-Aware event is held in conjunction with Santa’s Kingdom in December.
Deputy Rabbitte: Santa came early here.
Deputy Ardagh: Are any major events planned for next year?
Mr. Malone: Broadly the same range of events. In January there will be the Irish Farm Machinery Show which could not be held anywhere else; the eventing championships will be held there in June and towards the end of June there will be an event exhibiting tractors which is separate from the Farm Machinery Show. There is the National Hunt but that is not connected with the event centre.
Deputy Ardagh: Could any of these events have been held in other locations?
Mr. Malone: It would be very difficult to hold the Farm and Machinery Show anywhere else and the three-day event definitely could not have been held anywhere else. This centre has been up and running for roughly a year and it will have to be judged over a longer period. We looked at it in that context. One cannot judge it in terms of what happened in 2003 but what will happen over the next five or ten years.
Deputy Ardagh: So in the next Dáil when we come back, and if we are members of the PAC, we will be better able to judge it?
Mr. Malone: Yes I am confident of that.
Deputy Ardagh: Could Punchestown have funded this without having to be given 100% funding?
Mr. Malone: We would not have had a proposal without 100% funding. The difficulty is that there was a gap in the infrastructure. This is not a profitable enterprise by its nature. These event centres find it very difficult to make money. No commercial outfit was going to come to us, and it has not happened either before or since then that a group came to us, saying that if we gave it a 50% or 60% grant it would provide a facility. The advantage of Punchestown was that it was relatively near Dublin. It is a trust.
Deputy Ardagh: Can Mr. Malone repeat that?
Mr. Malone: Punchestown is in effect an agricultural trust.
Deputy Ardagh: We will come back to that. We would like to hear more about the trust.
Mr. Malone: In that way we know with whom we are dealing. The organisation provided the site and the facilities, ran the project and will manage the event centre. There were many advantages and the reality is that if Punchestown had not come forward no one else would have come forward. We have tried to think where else there might be a location or a sponsor for a project of this kind. It does not exist.
Deputy Ardagh: On 27 January 2000 the group received confirmation that it was going to get €6.9 million for the Punchestown Equestrian Exhibition and Show Centre and on 6 April, two months and ten days later, it came back looking for another €5 million or €6 million. Did the Department officials not hit the roof at that stage? Was it credible? How did they react to this?
Mr. Malone: Our reaction was that in effect these are two different projects. The project for €6.9 million was a smaller project. It was a bigger event centre but the way it would be constructed limited the range of activities that could take place there. For example, it could not be used as a machinery exhibition centre. What we were getting for €6.9 million was a centre that would deal with equestrian events. It would not be suitable for the wider range of events. This is not a case of costs getting out of control, in other words, it did not start with a project costing €6.9 million that ran up to €12.7 million. As Punchestown developed its thinking and looked at more facilities around Europe it felt it was a better idea and proposal to go for the more elaborate version.
Deputy Ardagh: Did Mr. Malone tell Punchestown he was glad it came back because this was much better and he had €5 million or €6 million handy?
Mr. Malone: We were getting a facility that had a much wider flexibility to hold events. Effectively, we had three choices in this project: we could have said no and refused to entertain any proposal and we would have had the same problem we had prior to it being constructed, we could have accepted the original proposal although the range of activities it could stage was limited, or we could go for the broader proposal with a better centre, a wider range of activities and more options for the future. Over time this is a public good facility. The €14 million development as it now is will prove to be good value.
Deputy Ardagh: The last paragraph of the Comptroller and Auditor General’s chapter states the new agreement would be completed by one or all of the three companies within the Punchestown organisation. Mr. Malone mentioned a trust. Could he give us details of what these three companies are, who are the directors and shareholders, and whether any profits are made within those companies? I am sure the financial statements will be available from the Companies Office.
Mr. Malone: Punchestown is a trust owned by the Kildare Hunt which in turn is a trust that has existed for more than 100 years. Within that the Kildare Hunt has three different companies - Punchestown Development Company Limited which in effect owns the racing facilities at Punchestown; the Blackhall Racing Company which manages the events at Punchestown, and Punchestown Enterprise Limited which owns the event centre. There is a trust with 134 members. It is under a 250 year lease agreement and in summary it has three companies.
Deputy Ardagh: Does the trust own those companies?
Mr. Malone: The trust owns them. There is one other aspect that I should bring to the committee’s attention. Horseracing Ireland, which has provided funding for the racing activities, a separate aspect of the Punchestown activities, is proposing because of the funding, that a new company structure be created of which in effect it would have 50%. When I indicated that we would re-examine the legal structure that was not to suggest that we have a legal problem. There has never been a disagreement or argument with Punchestown about the commitments, obligations or conditions but to be certain of this we need to have the agreement with the new company structure whenever that is set up. The advantage of that is that Horseracing Ireland is a State body and that will give an additional layer of protection.
Deputy Ardagh: The trust has 134 members. Could these members benefit in any way from any distributions possible or is there any asset that could be sold of which they could be beneficiaries?
Mr. Malone: We have examined the documentation. It is a trust. There are no fees paid to the directors. It is a non-profit making organisation in that sense. Punchestown does not make a profit. It is common knowledge that for racetracks around the country it is an achievement to break even.
Deputy Ardagh: One would expect that with such large facilities it would start making a few bob.
Mr. Malone: We hope that it will pay its way. We do not, and never did, envisage that it would make large profits or even modest profits. If that was the reality we would have a proposal from a commercial enterprise. We do not envisage this kind of difficulty arising but if it did arise we are legally protected. In essence, if somebody got a rush of blood to the head and decided to sell the event centre we would look for our money back.
Deputy Ardagh: Would the Department get interest on it?
Mr. Malone: Presumably we would. We have ourselves protected in that. If it makes any profits they have to be reinvested in the centre; they cannot be redistributed to directors.
Deputy Ardagh: How many acres are there in the Punchestown complex?
Mr. Malone: There are 500 acres.
Deputy Ardagh: If they were rezoned, given the way Dublin is growing, they could be worth €1 billion and the €14 million repaid to the State would be chickenfeed in that context.
Mr. Malone: As things are currently constructed that cannot be done. It is a trust.
Deputy Ardagh: Surely the members of the trust could benefit from it?
Mr. Malone: I am not sure. My understanding, and I am fairly clear on that, is that the deeds set out the purpose for which the land was given in the first instance. We have a condition in any event that if the property is sold, leased, or its use is altered, the money is repayable so we would get our money back. I am giving the committee my assessment that there is not the remotest possibility of the land being rezoned.
Deputy Ardagh: As I mentioned earlier, it could rightly be said that the emphasis should be on controls rather than outputs and there could be disagreement on that. On page 142 of the report under Evaluation of Project, the Comptroller and Auditor General stated his concerns about the evaluation of the project as follows:
... centred on whether the project had been comprehensively evaluated from a cost benefit viewpoint prior to its approval - in particular if it met the criteria set down in the guidelines issued by the Department of Finance for the evaluation of major capital projects. Many questions arise there because first of all the guidelines have to be met. I do not know what they are but I am sure that we could find out.
The next paragraph states:
In response to my enquiries the Accounting Officer informed me that the project was considered worthy of support because for many years the Department had been aware of the need for a facility of international standards. Mr. Malone was looking at outputs immediately. The Department wanted this facility and they were looking at outputs immediately. From this, it appears the whole question of the valuation was not taken on board.
Mr. Malone: That is not fair comment.
Deputy Ardagh: I am just asking what the position is here.
Mr. Malone: There was a need for such a facility. That was a strongly held view in the Department; it was also a view held in the wider agricultural community and among the breed societies. It is important that no one has come to us since from the agriculture sector and claimed we should not have gone ahead with this particular project. In terms of evaluation, this was not a normal proposal that would come from, say, a food processor looking for grant. In that sense, it was slightly more difficult to evaluate outcomes and outputs. It was clear that our objective was a facility of high standards. The issue was how much were we prepared to pay for that. Bearing in mind what I said earlier, there has been no sponsor either before or since. The sponsor who did come forward was prepared to do it if they received a 100% grant. We did have the option of hiring consultants which obviously would cost money. Consultants would have looked at two aspects of the project - the equestrian aspect and what events could this facility attract. We had a fair idea ourselves from the calendar of equestrian events that happen on an annual basis. The second aspect was farm machinery. There is a farm machinery and trade association and we sounded them out to see if this facility would be used if it were provided. The final aspect was in breed societies using it for exhibitions. They responded yes. This was against the background of the changing role of the RDS grounds, which has been capitalised in property, and the ploughing championships, which is an event that changes location each year. The choice then was to hire consultants or do the assessment ourselves, which we did. We have knowledge and expertise of this kind of area. We also have in-house expertise in architecture, engineering and people looking at projects. It has been accepted by the Comptroller and Auditor General that there were no questions of the actual management of the project.
Deputy Ardagh: It was exemplary according to the-----
Mr. Malone: We had a choice then - no project, the first proposal or the second one.
Deputy Ardagh: In the Dublin south area we have many of these community resource centres. If they want to get a computer and a printer, they have to put together a 20 page proposal with cashflows and repayment schedules. How many pages were in the proposal from the Punchestown exhibition and show centre?
Mr. Malone: There was a covering document of four to five pages. Then, there were a whole series of plans, drawings and all that goes with that.
Deputy Ardagh: As for the financial implications and evaluations, were there many pages?
Mr. Malone: Yes, there was a detailed breakdown of the costings. We have that and we can give it to the committee. It contains the various headings of expenditure and all this was gone through in the finest detail. We also sent out our internal audit unit to check that everything was done properly.
Deputy Rabbitte: Where did the genesis of this idea come from?
Mr. Malone: It came from Punchestown Racecourse. We were approached by Punchestown Racecourse and received a letter from them on 16 November 1999 setting out the proposal.
Deputy Rabbitte: How extensive was that? There was a letter?
Mr. Malone: There was a letter and obviously discussions with Punchestown Racecourse.
Deputy Rabbitte: Was the proposal a letter?
Mr. Malone: Yes, the proposal was a letter from the Punchestown Racecourse. We also-----
Deputy Rabbitte: Is the letter on file?
Mr. Malone: Yes, I have it on file.
Deputy Rabbitte: Roughly what does it say?
Mr. Malone: There was a letter to the Minister for Agriculture, Food and Rural Development on 16 November setting out drawings and layout plans for the Punchestown Racecourse development. The letter stated that the drawings had been prepared by Mr. James Twomey Architects. It also stated that the directors of Punchestown Racecourse believed that this was an outstanding opportunity to enhance the appeal and operational capabilities of the site. It continued that the principal element of this development would include the construction of one of the largest indoor complexes in Europe and cater for a wide variety of sporting, equestrian and agricultural events.
Deputy Rabbitte: Mr. Malone spoke of considerable in-house expertise and knowledge of this type of project. The proposal was, therefore, approved?
Mr. Malone: We examined that proposal. The exact date-----
Deputy Rabbitte: It was 19 January.
Mr. Malone: On 27 January. However, a letter went from the Minister for Agriculture, Food and Rural Development on 20 January.
Deputy Rabbitte: It was the proposal and those drawings from Mr. James Twomey Architects that were approved?
Mr. Malone: Yes.
Deputy Rabbitte: Why did the Department write to the European Commission on the State aid issue?
Mr. Malone: We did so because it is now normal procedure. There is a concern within the European Commission about State aid generally, with rules and guidelines governing it. We deemed it prudent anyway to get clearance in advance from the Commission and not having a subsequent problem.
Deputy Rabbitte: What difference would it make?
Mr. Malone: If the European Commission said that it contravened the State aid rules, the consequence would be that the grant would not be provided.
Deputy Rabbitte: It was approved on 19 January?
Mr. Malone: Yes, we had given approval in principle. However, that would be the normal sequence of events.
Deputy Rabbitte: Can we go back over the timeline of these events? Mr. Malone might stop me if I am wrong. On 16 November 1999 a proposal was put to the Department - to the then Minister to be precise - by Punchestown Racecourse. A few weeks later on 19 January 2000, the Department recommended approval of the proposal as submitted for €6.9 million. On 20 January, the then Minister for Agriculture, Food and Rural Development contacted the then Minister for Finance. A week later on 27 January, the then Minister for Finance agreed to the proposals. On 6 April, they came back with changes that would have the effect of ratcheting the costs to €12.8 million. On 2 June, the proposal was costed at €12.8 million. On 23 June, it was approved by the then Minister for Agriculture, Food and Rural Development and on 7 July by the then Minister for Finance. Is that correct?
Mr. Malone: All those dates are correct. The only slight adjustment I would make is that the revised proposal in the letter from Punchestown Racecourse was 2 June. The Deputy mentioned 7 April. That was the date we sent a letter to the EU Commission.
Deputy Rabbitte: On 6 April, the Department of Agriculture, Food and Rural Development was informed of the proposed changes. Is that correct?
Mr. Malone: Yes.
Deputy Rabbitte: In my experience there are not too many proposals that are moved through the system like that. Is that correct?
Mr. Malone: The proposal was processed quickly.
Deputy Rabbitte: It was processed remarkably quickly. What evaluation could have been carried out between 16 November and the Department’s approval on 19 January to the then Minister?
Mr. Malone: Much evaluation was done in-house and much can be done in two months.
Deputy Rabbitte: The period between 16 November to 19 January is a short time.
Mr. Malone: Yes, it is roughly two months. One can do much evaluation in that time.
Deputy Rabbitte: The then Minister turned it around the next day to the then Minister for Finance who came back within a week. Was the Department of Finance involved in this?
Mr. Robert Carey: Not in the details. When I went to the public expenditure division 33 years ago, we would have gone through this type of project with a fine toothcomb. We would also have gone through a proposal to purchase a box of pencils with a fine toothcomb. With regard to the policy now, I understand the Minister for Finance will be answering a question on it in the House this afternoon. The policy now is to give Departments far greater autonomy in projects like this. With that responsibility comes accountability. We do not give Departments a blank cheque. We have to be satisfied that there are appropriate and acceptable systems for project analysis, management, risk analysis and so on in place. The Comptroller and Auditor General mentioned that we assist the Departments with guidelines. I understand the Minister for Finance will advert to this this afternoon in the House. As regards our involvement in a line-by-line assessment or examination of this project, we believe this is a matter for the Departments that have the necessary expertise in this regard. We do satisfy ourselves that they have these systems. I am a member of the Department of Agriculture and Food independent audit committee. In terms of systems such as risk assessment and internal audit, they are setting the standard in the Civil Service. I am sure the Comptroller and Auditor General will agree with this. In accordance with this policy under the strategic management initiative, managers are allowed to manage without the Department of Finance second guessing everything they do. It must also be remembered that the spend this year from the Department of Agriculture and Food will be €1.2 billion. We cannot look over their shoulders every time.
Deputy Rabbitte: Of course. However, I have some familiarity with the Department of Agriculture and Food.
Chairman: Deputy Rabbitte, the Comptroller and Auditor General wishes to speak.
Mr. Purcell: We should bring some clarification to this as it is important if one is trying to get at the facts. The origins of the project were mentioned. In the report, it accurately states that in November 1999, the then Minister for Agriculture, Food and Rural Development received a proposal from the trustees of Punchestown Racecourse and so on. In that letter it does suggest that there had been some activity beforehand on this matter. I can read two sentences that would help in this regard. The letter is from the chief executive of Punchestown Racecourse to the then Minister for Agriculture, Food and Rural Development and copied to the Minister for Finance. It states:
Dear Minister
Following my meeting with your colleague the Minister for Finance, I now have pleasure in providing you with the drawings and layout plans of the Punchestown development which we spoke about on that occasion and which I have been advised to forward for your consideration.
The last line in this letter suggests there were certainly discussions prior to this proposal being made and that it did not come out of the blue. It states:
We are most grateful for the support which the project to date has received from you and your colleagues. We hope that this request will receive your positive consideration.
Kindest regards,
Yours sincerely.
That suggests that this was not the first time the Department had heard of it nor the Department of Finance. We did not see any documents when we were carrying out this audit to show the nature of those prior discussions or the nature of any support which the project had received to date. That might clarify the genesis of the project.
Deputy Rabbitte: So was this agreed by Ministers at the races before Mr. Malone received it?
Mr. Malone: I cannot answer that question. I am not being evasive.
Deputy Rabbitte: Does Mr. Malone have any opinion on it?
Mr. Malone: It is clear that both the Ministers for Agriculture, Food and Rural Development and for Finance were aware of this project. I cannot comment beyond that.
Deputy Rabbitte: Accepting what Mr. Carey said, are there many projects of this size that would be turned around in a week in the Department of Finance?
Mr. Carey: That presupposes that they come to us for approval.
Deputy Rabbitte: This one went to the Department.
Mr. Carey: It did indeed. What we did not do was to second guess the Department of Agriculture, Food and Rural Development. We had given them delegated sanction to proceed with projects like this, as long as we were happy that there were appropriate controls, safeguards and procedures in place. Thirty years ago we would have taken six months to go through this line by line. Departmental policy has changed.
Deputy Rabbitte: It was turned around in a week. There is no evidence on file that anyone in the Department of Finance assessed it.
Mr. Carey: No, there is not. It really was not our business to assess it.
Deputy Rabbitte: So when it doubled-----
Mr. Carey: We have transferred and allocated the responsibility for doing that to other Departments. We are allowing them to manage their own projects. When the then Minister for Agriculture, Food and Rural Development, Deputy Walsh, wrote to the then Minister for Finance, Deputy McCreevy, he was looking for a policy agreement that the State would get involved in this project. There was never a suggestion that the Department of Finance would do a root and branch examination of this. The Secretary General of the Department of Finance, Mr. Tom Considine, made this clear in his response to the Comptroller and Auditor General.
Deputy Rabbitte: When it went back to the Department of Finance with the price doubled, did anyone look at it then?
Mr. Carey: It went directly to the Minister for Finance. This was Minister-to-Minister correspondence. The Secretary General of the Department of Agriculture and Food, Mr. John Malone, stated that this was a different project. The main considerations of autonomy responsibility and accountability for projects, whether they are replacing earlier projects or whatever, would still rest with the Department concerned. The Department of Finance will not get involved in the detailed assessment.
Deputy Rabbitte: When Mr. Carey says that it was a Minister-to-Minister project, is he saying that it did not come under assessment even on the second occasion from relevant officials within the Department of Finance?
Mr. Carey: No, it did not. There was no need for it because, as I repeat, the responsibility for assessing matters like this is with the line Department. Whether for good or evil, and I think for good, this autonomy, under the strategic management initiative, has been given to Departments. The Department of Finance will give guidelines, and I can let the committee know what those guidelines are, but we will not duplicate their work. We will make an appearance in cases where new schemes are being introduced, where terms of schemes are being changed or where there is going to be an ongoing effect on public finances. A project of this size however is something that the Department of Finance does not want to get involved in because we want to let line Departments manage their own affairs. The trend will continue in that direction. The capital appraisal guidelines are currently being reviewed. We have asked the Comptroller if he has any thoughts on the matter to let us know, and I extend a similar invitation to the committee.
Deputy Rabbitte: It is perhaps a good thing that it is your responsibility in terms of making fast decisions and getting on with it. Am I to understand that you are saying that this is a great facility and therefore is worth the money, and that we should not be tracing the manner in which the process was handled from conception to delivery? Is that what you are saying?
Mr. Malone: I do not think I am saying that the committee-----
Deputy Rabbitte: You are saying that you are satisfied. Your formal statement says that the Department is satisfied.
Mr. Malone: We considered, and I still consider, that there was a need for a facility like this, that it has to be judged in a wider context of the public good. The project was well managed. I accept that the facility is expensive. I do not argue or disagree with that. If the question is, with the benefit of hindsight, whether we made the right decision, I feel we did.
Deputy Rabbitte: The Department of Finance considers the Department of Agriculture and Food the lead Department in this area. I am sure the Department of Finance would permit some of us to differ, but that is neither here nor there. The proposal was put to you in November 1999. That was the year that the health centre in Millbrook Lawns in my constituency burnt down. Nine rooms were destroyed. The centre is still not refurbished. The refurbishment cost is €800,000. The area is hugely populous, with people requiring baby and maternal care, speech and language therapy, social workers and so on. The centre was burned down in November 1999 and we have still not got it rebuilt. What you say in your statement is that "Feedback received to date has been positive and I am satisfied that it will prove a great success over time." That is hardly the way to handle projects in any Department, is it? You are now saying that we have two different projects, that the one you approved is not the one delivered. Is that right?
Mr. Malone: No. Maybe I could clarify that point. The original project had a cost of €6.9 million. The subsequent proposal went ahead. It was not simply a question of the cost of the project doubling, or costs getting out of control, but that in effect the second proposal was for a different project than the first project.
Deputy Rabbitte: Is that not what I said?
Mr. Malone: Maybe I misunderstood you.
Deputy Rabbitte: Logically, where does that leave us? A proposal is put to the Department. Drawings are submitted by presumably reputable architects, and so on. The project is approved at a cost of €6.9 million. Someone then decides to change the project and comes in with a different one costing twice as much and you say that is fine, you give it the go-ahead and say it will be a marvellous filling of the gap in the infrastructure.
Mr. Malone: We never formally wrote to Punchestown. We had a letter of approval on 27 January from the Minister for Finance, Deputy McCreevy. We never conveyed formal approval to Punchestown for the first proposal, though I am not putting that forward as an argument.
Deputy Rabbitte: It is an intriguing point nonetheless. What do you mean by it?
Mr. Malone: I mean that we had, as you know, got into the process of-----
Deputy Rabbitte: Of deciding that the proposal was not suitable and that you would need a different one?
Mr. Malone: No. We had got into the process of liaising with the European Commission on State aids. There is a sequence of events there. Moreover, Punchestown began to re-evaluate the project. As we understand it, they looked at other facilities abroad. I do not see it as a being a matter for criticism that for additional expenditure one could get a wider range of facilities and in effect a better centre. It is fair to say that the Punchestown people changed their minds. There is no question about that.
Deputy Rabbitte: I am intrigued by the comment you made there, Mr. Malone.
Mr. Malone: In case there is any impression that this is a facility for the elite, it is not. The kind of people involved in agricultural events, livestock breeding and three-day eventing are ordinary people.
Deputy Rabbitte: Why do you think it is necessary to make that point?
Mr. Malone: Because the point you made, and I cannot comment on it, about the situation in relation to the health centre-----
Deputy Rabbitte: No, no. Maybe the health centre should come within the remit of the Department of Agriculture, but I was not bringing it up from the point of view of the elite versus my constituents. That has nothing to do with it. I am interested in the point that you got approval for a project for €6.9 million but you never communicated that to the proposers of the project. Why?
Mr. Malone: Because we went to the European Commission.
Deputy Rabbitte: The European Commission did not want to change the proposal. You did not go to the European Commission until 26 April.
Mr. Malone: We went there to clarify the position on State aid. We had to do that.
Deputy Rabbitte: How would that affect the kind of centre to be built?
Mr. Malone: The Punchestown developers wrote to us on 6 April indicating that they were thinking of changing it.
Deputy Rabbitte: With respect, Mr. Malone, you may be defending something very difficult and I do not know the background. Please treat me with a little respect as well. How is it that a proposal could be put to you and processed with such speed to finality by the Minister to whom you report and the Minister for Finance, without you conveying that to the proposers? What has Europe to do with that? The State aid issue would have applied whether it was twice the size or half the size.
Mr. Malone: I do not think I am treating you with disrespect. I accept fully that the State aid issue is not about whether it was €6 million or €12 million or €14 million. We would have had to deal with that regardless, and early on in the sequence of events. We did not formally write to Punchestown. There is no dispute about that. We would have been in contact with Punchestown. Punchestown would have had an idea of what was going on in the sense that there was not a total absence of communication between ourselves and Punchestown between 27 January and 6 or 7 April, when the subsequent letter came from Punchestown. They would have had an idea of what was happening. It is my assessment that the Punchestown developers, when they began to develop the project and make decisions on how to proceed, began to see that from their perspective there was a better way of doing it and that a better facility could be had. There is no great mystery surrounding the fact that we had not sent a formal letter to Punchestown, given that we were dealing with the EC Commission and were having phone discussions with Punchestown.
Deputy Rabbitte: This is important. On the one hand, I do not think that public servants even as eminent and senior as you ought to be subjected to every "i" being dotted and "t" crossed, because if that were so nothing would ever get done. I expressed that view in the Dáil yesterday and the Taoiseach expressed certain views which presumably you read today. Last Thursday your colleague, the Accounting Officer from the Department of Communications, Marine and Natural Resources, came before the committee, when we had an almost identical situation, with the cost of a project doubled, and so on. The previous Thursday we had the Accounting Officer from the Department of Education and Science talking about the Cork School of Music project which started out at an estimated cost of €13.8 million and is now projected at €200 million - not €100 million, as reported in a newspaper. If it is unfair to expect senior civil servants who have the expertise of which you speak, and the knowledge of a project such as the Punchestown one, it seems fair that if a project is decided on, approved and evaluated, it ought to be delivered roughly as approved, conceived and validated, and roughly on cost. That is not happening and it did not happen in this event. There may be factors here which are entirely outside your control, because the only conclusion one can come to from listening to your answers is that there was tick-tacking going on between whomsoever. Presumably that led to a project entirely different to the one approved. Yet it is difficult to appreciate why you cannot say to Deputy Ardagh why, in terms of the evaluation, no cost benefit analysis was undertaken in the normal way. There are many questions I would like to ask about this but I am absolutely flummoxed by the fact that on page 144 of the report, the Comptroller and Auditor General states:
My concern is in relation to the agreement centred on the fact that the conditions governing the State’s financial support were covered only by an exchange of letters [That strikes me as unusual, Mr. Malone and the follow-up is extraordinary] and had not been referred to the Department’s legal advisers.
I would have thought that if you wanted to make do with a simple exchange of letters, someone would have taken the precaution of going down the corridor to the legal adviser. That person might say to the adviser something like "This project is not being put through the Attorney General’s office. It is a badly needed project to fill a gap in the infrastructure. There is a lot of money currently around and we need to replace the RDS. Would you look at this letter before it goes out?" Is that an unreasonable issue for a member of the Public Accounts Committee to raise?
Mr. Malone: In the letter we sent to Punchestown there were 17 different conditions. It would be the format we use to assist projects in other areas. This would be the fairly standard approach that we would take. We feel that such a letter provides adequate protection for the Department and, more importantly, for the taxpayer. Generally we look for legal advice if we think we have a legal problem. We genuinely did not think we had a legal problem in this particular situation. We have acknowledged the point raised by the Comptroller and Auditor General and submitted the issue to our legal unit. A new more formal legal agreement will be prepared. There is no problem with the Punchestown developers. They have not said they have any problem or that they contest any of the conditions.
Deputy Rabbitte: Why should they?
Mr. Malone: The issue relates to how far one goes.
Deputy Rabbitte: We know who Santa is. In this case, Santa is the taxpayer. We do not yet know who the cowboys are. There is no reason the Punchestown developers would raise the issue.
Mr. Malone: The point relates to them contesting any of the points or believing that they could not adhere to any of the conditions. That is where difficulties arise. We have not run into any problems of that kind. This project has gone smoothly. I accept the argument on costs, but there are no problems with the project itself or any arguments with the management in Punchestown. We will face up to the issue of producing a clearer and more exact legal agreement.
Deputy Rabbitte: In terms of projects initiated within or approved by the public sector or whatever, you told us about the knowledge reposed in the Department in respect of Punchestown and everything that surrounds that. You said that between 16 November, when you got the proposal which we now know was being discussed with and between whomsoever before that date, and the date on which it was approved by your Minister, on 20 January, you carried out your own assessment of the project, and so on, sufficient to satisfy you that it ought to be approved. Why were the deficiencies and unsuitability of the proposal not encountered during that period of assessment rather than subsequently?
Mr. Malone: It was not a question of deficiencies or unsuitability but a question of choice. The first proposal in effect offered an equestrian centre that could accommodate large and important equestrian events. However, because of the way the centre would be constructed, it would limit the range of options, such as machinery exhibits.
Deputy Rabbitte: Why did that not present in the assessment from November to January?
Mr. Malone: That was the choice we had. That was what one would get for €6.9 million. If one wanted to spend over €12 million, or whatever the figure is, one could go for the broader proposal.
Deputy Rabbitte: If one wanted, one could carry on and put a roof over it. That is not the point. The proposal was put to you. You say that drawings were presented and so on, that it was assessed and that you had the expertise and the knowledge sufficient to enable you to tell your Minister that you were recommending approval of the project. Why did it unravel after that? At whose instigation?
Mr. Malone: At Punchestown’s instigation.
Deputy Rabbitte: They were the authors of the original proposal.
Mr. Malone: They were the authors of both proposals. Apparently they looked at facilities in different parts of Europe, saw that there were other options, and came back with a second proposal which was more expensive but which was different.
Deputy Rabbitte: Did they go to Europe only after they heard on the grapevine that the first proposal had been approved?
Mr. Malone: I cannot answer for Punchestown, but I understand that they began to look at similar facilities in different parts of Europe. They formed the view that there was a better and, I accept, a more expensive way.
Deputy Rabbitte: Were you involved in the exchange of letters with the Ministers?
Mr. Malone: In the sense of my name being on the Minister’s letter?
Deputy Rabbitte: Did you draft it for the Minister?
Mr. Malone: The letter was drafted in the Department. The proposal was processed in the Department. It went through the various channels. I saw the letter, if that is what you are asking, before the Minister signed it.
Deputy Noonan: You said that in such projects the Department of Agriculture, Food and Rural Development was allowed to proceed with autonomy. Does that mean that there was really no evaluation of the merits or demerits of the proposal undertaken by the Department of Finance?
Mr. Carey: That is what I said, Deputy.
Deputy Noonan: Perhaps Mr. Malone might tell us, following from that, what similar projects his Department proceeded with autonomously and without consultation or evaluation by the Department of Finance.
Mr. Malone: Perhaps I might explain the background. Normally, in individual Departments, there are budget lines and specific schemes. The Department of Agriculture and Food does not fund very many capital projects, but it does so in the food industry, for example. We give grant assistance to individual projects. Normally we do not submit those projects to the Department of Finance at all.
Deputy Noonan: I understand all that. There is no need to say that.
Mr. Malone: The project in question was a one off. We do not get too many projects of that kind.
Deputy Noonan: That was my understanding. However, the Department of Finance’s explanation for the lack of evaluation offered here was that you could act autonomously to proceed with such projects, which suggests that, because of your expertise in assessing them, there was no need for the Department of Finance to second guess you. Now you tell me that it was a one-off and that you never had any experience of assessing such projects previously. Is that right?
Mr. Malone: I said that we do not have too many projects of that kind. I will give an example related to the horse industry. We have funded several centres for wandering horses in inner Dublin.
Deputy Noonan: What was the capital cost of the most expensive wandering horse facility in inner Dublin?
Mr. Malone: It would be less. In total I believe that we have spent about £4 million. The highest capital cost was £3.3 million. Such situations arise, and one must deal with them as best one can. Individual one-off projects arrive and one forms an assessment. We sought a policy decision from the Department of Finance. Regarding the assessment and evaluation of the project, we must take responsibility. I do not deny that.
Deputy Noonan: When you replied to Deputy Rabbitte about the project’s genesis, you rested that on the letter of 27 November. Then the Comptroller and Auditor General intervened to indicate that the genesis might have preceded that. You might go back over that ground.
Mr. Malone: I was asked from whom the project had come, which was Punchestown. I was asked when it had arrived at the Department, which was 16 November. It is clear from the letter that there had been discussions involving Ministers, but I did not take part. As far as we are concerned, we got a proposal on 16 November and had to deal with it.
Deputy Noonan: Is it not clear from the letter that there had been meetings between Ministers and the people at Punchestown previously?
Mr. Malone: Yes. There were contacts, though I cannot say if there were meetings.
Deputy Noonan: There was no departmental presence at any of those.
Mr. Malone: No.
Deputy Noonan: Would you be surprised if I said that I find the whole thing surreal and almost incredible?
Mr. Malone: Yes. We have a facility which is of high quality. It will stand the test of time. Initially we had a choice of not providing any funding. Essentially the alternative was to reject the proposal and say we were not getting involved. It was clear that one would have to provide 100% funding since no sponsor would come forward with his or her own money. That was the choice that we made. I accept that there is an element of risk, just as there is with any project. We are still in the early days, but we have no reason to believe that the facility will not work. Over time it will prove its value. I am anxious to emphasise that it must be seen in the context of a facility for the wider agricultural industry. It must be there to help the sport horse, livestock and wider agricultural industries. The RDS goes back a long time. Essentially it is in many ways a voluntary facility, and unfortunately those days are gone. I do not think anyone would have provided a facility as a charitable trust in a pro bono context.
Deputy Noonan: That is not why I am incredulous. My incredulity arises from my experience as a Deputy and former Minister. I have never seen a project proceeding in such a way through a Department. I have never seen one from which the officials in the Department of Finance stood back in such a manner. We are not discussing the policy here but the procedures, particularly the evaluation conducted by you in the Department of Agriculture and the Department of Finance. There was none in the Department of Finance, and the speed at which the project moved in the Department of Agriculture is, quite frankly, amazing. Our experience as active politicians at ministerial and constituency level is not squaring up with what happened in this case. If the ceiling in a Mungret school falls down on top of children in the summer, it needs a national row in the media to make it safe before the children go back in September. That experience is replicated in extraordinarily bad conditions in primary schools all over the country. We cannot get a handful of extra gardaí on the streets to protect the citizens of my city. The first-time buyers grants has been abolished. There is chaos in accident and emergency departments in hospitals. Yet the Department of Agriculture can evaluate a project costing almost £6 million over Christmas and say is it grand and necessary for the national interest. Then, before it has even issued a letter of sanction, the proposers are back again, and the thing runs so rapidly that, within about a fortnight in the summer, sanction is given by the Department of Finance to double that expenditure. As a practising politician, I find that process so different from my experience that none of your explanations to date really satisfies me. The question is whether there is another story. Was the decision taken at ministerial level? Did the Minister for Finance, being a Kildare man, have a strong personal interest? Did he think that it was a very good facility - which is probably true? You conducted only a cursory evaluation because you were following political instructions. Ministers are entitled to make policy decisions. That is why they are there. However, if that was the case, I would prefer you, and the Department of Finance, to say so. You got instruction from the Ministers, who had preliminary talks and thought it an excellent facility. They had second thoughts half way through and thought that a better facility could be provided, so they told you to give them the money, since they thought it was a good project that should be got through fast. If that is the situation, we understand it, once again from our experience as politicians. In another forum, we can examine the policy and see if it was justified public expenditure and value for money. It is like watching one of the Monty Python sketches on the public service. With all due respect, I must say to both Departments that there is a different reality of which we are all aware. I do not know whether you wish to comment on that but it seems to me that, as Accounting Officer, if the decision was primarily political and you were instructed to do the normal thing - provide the money, issue the letters, ensure that everything was legally sound and attach the normal conditions - you went ahead and did it.
Mr. Malone: In fairness, I do not think I can get into the political aspect.
Chairman: I know that it affects you if you go into policy aspects.
Deputy Noonan: I am not asking him to do that.
Mr. Malone: I cannot get into the political realm.
Deputy Noonan: I am not asking you to do so.
Mr. Malone: It is clear that Ministers had an interest in the project. I accept responsibility for my role as Accounting Officer in the processing of the proposal, the procedures followed and its value for money. There was a view, which I hold personally, that there was a need for a facility of that kind. I have held that view for a long time and I make no secret of it. I am not alone in that in the Department and people in the wider agricultural world would also accept that. There was a predisposition in the Department towards that proposal in the sense that we felt, and still feel, it was something that the wider agricultural industry needed. Second, regarding the consideration of the proposal, we had the option of sending for consultants, but, as I said, they would have cost money. In the main, the consultants would have been talking to people in the Department and the wider agricultural world to whom we were capable of talking ourselves. I do not deny that the proposal was processed quickly. On the argument about whether one can have proper consideration of a proposal in two months, I believe that one can if one goes about it properly and has sufficient background knowledge. We were essentially left with the choice of accepting or rejecting the proposal. Someone else putting in funding or coming forward with an alternative proposal was not an option. It was simply not there. Our choice was between accepting or rejecting the proposal. I can understand the points made about difficulties in other areas and what €12 million or €14 million would do in education, health or security, but I am responsible for the Department of Agriculture and Food. We spend a great deal of money and take our responsibilities seriously regarding accountability and controls. I cannot add more than that. I cannot say whether Ministers were predisposed to the proposal. It was approved quickly and we proceeded. The facility is there, and in my view it is a good one and will stand the test of time. There would be a bigger problem if the project had gone wrong or if it were a white elephant, something we do not have.
Deputy Noonan: Did you investigate the financial state of Punchestown before your authorisation?
Mr. Malone: We were aware of its financial state since, at that time, we were responsible for horse racing. It was not an issue in the sense that it was a stand alone proposal. The nature of racecourses and the racing industry generally is that they do not generate huge profits. Broadly speaking, they break even. We were aware of the financial situation in Punchestown.
Deputy Noonan: How would you describe it?
Mr. Malone: It is difficult. For the past two years I believe it has made a modest profit. I repeat the point that both the racing facility for which we are no longer responsible and the events centre will probably break even.
Deputy Noonan: At the time of your evaluation and before, was it not true that the financial situation at Punchestown was very serious?
Mr. Malone: That was subsequent. There were internal difficulties in Punchestown. I cannot answer for the people there, but it is common knowledge.
Deputy Noonan: I was suggesting that the Punchestown decision to go for an international facility of that magnitude was partly motivated by a desire to make the whole enterprise solvent. There was an issue regarding putting such a facility in to invest, diversify and make the project solvent. Did that appear anywhere in the proposals?
Mr. Malone: No, I do not think so. It is clear that racecourses that operate as stand alone facilities find the going difficult. That is common knowledge, and there are many racecourses around the country that diversify into other facilities or get ancillary facilities going. The project was not put in place to resolve the financial difficulties of Punchestown. It was a stand alone project. As far as I know, the difficulties in Punchestown became evident some time later. New structures have been put in place and our information is that the racing end of the activity is now generating a modest profit.
Deputy Noonan: The notification to Europe was in the spring of 2000. Did that arise from the fact that you knew at that point that Punchestown would be involved in non-core activity, meaning that competitive issues would arise with the local hotel and catering industry?
Mr. Malone: No. That would be normal procedure where one is giving a 100% State grant. We would do that regardless to check with the State aids.
Deputy Noonan: What is the current breakdown between core activity and non-core activity in the centre?
Mr. Malone: Much of the non-core activity does not go near the events centre at all, for example, the music concerts. The events centre is not suitable for them. There are some exhibitions that are not related to agriculture. In terms of the number of events it is probably 50-50, but as regards their relative importance, the equestrian and endurance championship would be the biggest by far, other than the national hunt festival that takes place in Punchestown.
Deputy Noonan: In your introductory remarks you agreed a facility was needed to represent the industry, both nationally and internationally and in addition to attract both national and international agricultural events here. What events would correspond to that objective?
Mr. Malone: The European eventing championships is a huge event, with well over 100 competitors and all that goes with it. It is the biggest equestrian event in Europe. That was held here in September. The farm machinery sector could not operate without a facility such as this. It is debatable whether events such as those staged by the pony clubs could, but definitely the facility is of use and we would hope, over time the whole area of livestock breeding can be accommodated. These events move around every three or four years and we feel, down the line, some of these could come to Punchestown.
Deputy McGuinness: First, I am not going to address the political side of this and policy. The committee deals with everything other than policy and I respect the fact that politicians, Ministers and backbenchers, either push or change individual projects. That is a reality and can be dealt with in a different forum. As regards the Department of Finance and the confirmation that each Department is now allowed to make the assessment and empowered to go ahead, on new grounds, when was that introduced and is every Department now acting in that way? Has an assessment of each Department been carried out to ensure the structures, the personnel - and the professionalism in terms of qualifications and people - are in place to do the type of assessment allowed? I ask because every Thursday in this House that would not appear to be the case. Every week it is the same story from all the Departments that have been before us. There are millions in the difference, it is not nickels and dimes any more. It is a colossal figure. Individual Departments appear to lack the ability to deal with the policy the Department of Finance has passed on. As regards this specific issue, it refers here to discussions with the Minister in 1999. While we have been referring to €6.49 million up to now, and that figure moving upwards, the figure on page 141 is €3.17 million. We are actually dealing with €3.17 million upwards. It would appear that in the movement upwards there is a reduction in the area of the centre from 10,000 square metres to 7,500 square metres. It therefore became more costly for a smaller area in terms of that particular building and some increased costs elsewhere. To take the other end of the scale, a community making an application to any other Department has to append a raft of documents to it - legal documents, project plans, a business proposal and in some cases a marketing analysis in relation to the demand for money from the Department. That raft of documents would be different, I imagine, if it was for a €3.17 million proposal compared to one with an overall spend of €14.8 million. What documents were there, beyond a letter and the plan submitted to support a request for Punchestown to move from €3.17 million to €12.8 million and €14.8 million? What changes were in the documents to support that? Is there a business plan? Was there a marketing analysis? I do not want to hear that it is believed to be a viable project or that it is a fine building. I want to know what was examined and what led to the decision that this was a fine project - in the context of the procedures that would normally be followed by every other Department in respect of even the smallest amount of money. For example, I have seen documentation nearly one foot in depth that was sent to the Department of Finance for consideration in respect of a child care project for €80,000. It would seem from the answers Mr. Malone has given up to now that that is not how he has conducted his analysis in this case.
Mr. Malone: There are a number of questions. First, as regards the events centre and the change in the costs from €3.17 million to €6.48 million, the difference was that the new proposal is what is called a single span event centre. There are no supporting pillars and that substantially increased the cost. The advantage of that particular type of structure is that it gives the centre more mobility internally. That is probably the big change that took place. Second, as regards the stables, there were additional car parking and other facilities. As you know, 147 new stables were provided. That was a good decision. The stables are there for the benefit of the supporting staff, the people who work in these events minding the animals. Health and safety is now an important issue. It was decided that road access had to be improved and that a single entrance was better than a double entrance. The entrance would be used by the event centre and also by the racecourse. There is a whole series-----
Deputy McGuinness: As regards the changes taking place, would Mr. Malone not think that anyone with a passion for delivering the centre, who understood this type of business, would clearly know what was required in respect of health and safety and other issues, the bedding of animals, the presentation of the exhibition centre, generally, and so on as well as the supporting businesses? They would understand that and have it in the application for funding from day one. That is what he would be looking for. It would be driven by Punchestown which would have supplied the information. The point I am making is that it moved from €3.17 million to the €14.8 million. Surely if a €14.8 million project was being planned in the beginning, the documentation and requirements would have been substantially different. Who was driving the change in this? Was it the Department, because Mr. Malone said earlier the expertise was there, or was it Punchestown? Which was it?
Mr. Malone: The short answer is Punchestown. First, to clarify one point, the figure went from €6.9 million to €12.7 million. There was an additional €1.5 million all right, but it is from not €3.1 million to €12.7 million. It is €6.9 million.
Deputy McGuinness: I have to disagree. The €3.17 million is where it started from.
Mr. Malone: No, the original proposal was €6.92 million. It went from €3.17 million to €6.4 million for the actual event centre.
Deputy McGuinness: The point I am making is that Punchestown was considering a project of around €3.17 million.
Mr. Malone: Initially yes.
Deputy McGuinness: Yes, that is a fact. The €3.17 million had to come from somewhere. Punchestown was considering a project of around €3.17 million. That is from where it started.
Chairman: Mr. Purcell may be able to clarify the position.
Mr. Purcell: That is not true. It was an element. Clearly the main element of the project was a new exhibition and events centre. That is very important and indeed the key element of the development was originally envisaged to cost €3.17 million. However, the new design for this particular key element of the development brought it to €6.48 million. The total project did not simply consist of sticking an event centre there. Roads and stables had to be put in to support the centre’s activity, and also a new entrance complex.
Deputy McGuinness: I understand that but I am trying to explore how well thought out the project was at that time. It must not have been that well thought out. I will ask a direct question: is there a comprehensive business plan attached to this application which deals with how the project was going to be delivered, regardless of price, and how it would stand up, after delivery, leading to profitability? The people involved are not doing it for charity or just to break even. They have a proper corporate structure, so they would seek to cover themselves and move on. Is there a business plan on file from Punchestown outlining all they wanted to do?
Mr. Carey I just want to respond to the question addressed by the Deputy to the Department of Finance about when this business of delegation came in. It came in with the strategic management initiative, SMI, in the late 1990s. I do not like to steal the Minister’s thunder because he will be talking about this in response to PQs, but it is current policy to give the greatest degree possible of delegation, autonomy, responsibility and accountability to all the Departments. I do not know what other Departments who come before the committee, say in that regard. I am just saying that is Department of Finance policy.
Deputy McGuinness: The other part of that question, now that it is being dealt with, was whether each Department had been examined in the context of its structures and ability to deal with all of the issues now arising - and that continue to arise here every Thursday.
Mr. Carey: I can only speak about the Department of Agriculture and Food, the one with which I deal. I mentioned earlier that as a member of the audit committee of the Department, I am absolutely convinced that it has a state of the art system of project appraisal, management, risk analysis and internal audit. I am not saying every Department has a system up and running to the same degree as the Department of Agriculture and Food, but this is an ongoing process notably in response to the report Sean Cromien did in 1999. Departments are introducing all of these exigencies.
Deputy McGuinness: Was that state of the art analysis and so on applied in this case?
Mr. Carey: That was 1999. This is 2003. Yes I am satisfied. I am not saying what is state of the art.
Deputy McGuinness: Is this the type of procedure we can expect from here on?
Mr. Carey: That was in 1999. What I am saying is that the state of the art system existed in 2003. In 1999 I was not there and when this particular project arose was outside the country. I have no doubt but that it was comprehensively and satisfactorily analysed in the Department of Agriculture and Food. Probably the only reason they actually came to us with that particular project, given what I said about the system of delegation, was first, they wanted a policy a decision on whether the State should be 100% involved and second, more technically because it was a new service, they needed our approval for a new subhead. That is why they came to us.
Deputy McGuinness: Is Mr. Carey happy with the procedure and - I will ask again - is this what we can expect from now on - that there will be a fast tracking of projects like this with a turnaround time that was available to the parties here and that each Department now has the ability to do this? That is wonderful.
Mr. Carey: No. First, the question that relates specifically to this project is for the Accounting Officer to answer. His Department managed to turn this particular project around in what might be thought to be an excessively short time. I am not saying that the process of delegation and the transfer of autonomy, responsibility and accountability is per se going to result in a whole series of projects being turned around. I do not know. It will be up to the Departments given this delegation to apply it as they see fit.
Mr. Malone: Just to clarify, as regards the various headings of expenditure - and there are quite a number of them - we got detailed documentation from Punchestown as regards all of them. The project came in on budget. As I said earlier, the proposal changed, but it came in on budget. The November project and the June 2000 project were in essence two different projects.
Deputy McGuinness: Regarding the business plan and the necessary explanation and projections, can that be clarified? That is all I want to know.
Mr. Malone: I am sorry. I was coming to that point. As regards this particular project, it was not a normal undertaking. The Deputy said not to say it but I have to: this was not a normal capital project. This was a public good project. The Deputy said a proposal would have to be made that would generate profit. If this was a profit making enterprise, then some private entrepreneur would have come forward. No private entrepreneur -----
Deputy McGuinness: I did not say that. I said one would have to seek to break even. Otherwise it will be a burden on the State forever. It says here that the level of State support sought is not indicated - the first paragraph of the initial proposal. When did it emerge or who asked whom for the 100% State support? I am not getting the explanation I should get as regards the question I am asking about the business proposal, regardless of whether it was a public good proposal. I have seen public good proposals come into different Departments and they have to be accompanied by the proper back-up documentation, which almost always in a case like this comprises a marketing strategy or analysis of what the market demands and a business plan that deals not only with the costs but the projections as to how it will be managed. Otherwise it is an inadequate proposal that requires further information. Mr. Malone should not address the building or how it is going to work in the future. I want to know from a procedural point of view about those two pieces of information. Are they there, did someone examine them and from where did the request for the 100% State funding come?
Mr. Malone: The request for 100% funding came from Punchestown. It was our understanding from day one that it required 100% funding. Had there not been 100% funding the proposal would not have gone ahead. As regards the second point, we did not have a business plan per se.
Chairman: You had no business plan?
Mr. Malone: No. To clarify, this is a project, as I said earlier, that at best will break even. The State was providing the facility. It is up to Punchestown to run it and manage it.
Deputy McGuinness: Who said it would break even? What figures were there to prove it would break even? The second part of that question was whether there was a marketing plan as distinct from the business plan available. Did someone just say it was going to break even? I am interested to know how it could be accepted by the Department that it would break even or might lose some money or that it was there or thereabouts. What figures were there to support that? What projections or marketing plan was there to support it? We now learn that there was no business plan for a project costing €14.8 million.
Mr. Malone: A sum of €14.8 million was in place to provide the facility. Punchestown provided the site and the management as well as running the facility. We had projections of the likely events.
Deputy McGuinness: I know other members of the committee wish to ask questions but I am baffled and amazed by what you have told me because the most lowly of projects that are beneficial to the community and are offering sites are required to provide the kind of documentation I am asking you about. You are telling me there is no marketing strategy or business plan. With that in mind, you answered earlier that you did not seek legal advice because there was not a problem, but if I was getting €14.8 million from you, John Wayne or no John Wayne, I would be quite happy. You would not have a problem with me. The legal advice should be sought on the basis of problems emerging, that is what people do. If I am leasing a building to a client who seems nice, that is fine, but that is not the way business is done. It is done on the basis of worst case scenario for putting the lease or anything else in place. The worst case scenario here is what legal advice did you seek that confirmed that you could proceed with just the conditions? What legal advice is there that indicates that, even when you go back to Punchestown perhaps with more rigorous conditions? This is a partnership with you supplying €14.8 million on behalf of the State. What protection can now be put in place and what difficulties might emerge from that?
Mr. Malone: We are revisiting the legal aspect. We do not think we have a problem with Punchestown. I am absolutely certain that we do not.
Deputy McGuinness: It depends on what conditions you attached to it.
Deputy Connaughton: After three hours it is difficult to bring in any new material. There are a few things that occurred to me as I sat listening to this, although it has nothing to do with the discussion here. The actual project is fundamentally good in that it will benefit the agricultural community to a certain degree. I have major problems because of the committee I sit on and our constitutional role of achieving value for money. Like Deputy Noonan, I have also been looking at these things for a long time. The speed at which this happened was almost indecent in its haste. In the context of a few weeks ago, we were here arguing for two hours with Teagasc and the Department of Agriculture and Food because they were not able to keep open a small advisory farm in Ballinamore, County Leitrim, as a result of the cutbacks this Government has made in the poorest areas of the country, and remember that we are talking about €14 million. These were cutbacks inflicted by the Department of Finance on the Department of Agriculture and Food which worked their way down to Teagasc. The same thing happened at the Knockbeg sheep centre in Carlow. A large part of the farming community, looking at the priorities demonstrated here, will find it hard to understand why €14 million was so readily available at the drop of a hat for what will admittedly be a useful facility, but is it more or less useful than many of the other projects that had to be axed? There seems to be a common denominator in the genesis of this, two Ministers and a racecourse, and Ministers who, rightly, have an interest in horse racing and even before it came to the Accounting Officer or the Department, it appears it was a done deal because this appeared to two Ministers to be a good thing. I do not know for whom it was a good thing but that is the way it appears to us after listening to the evidence for three or four hours. In the circumstances, even though this centre will be useful on the equestrian side which is where it will make its name, most people understand that we have a national ploughing association which was so successful in the display and demonstration of machinery that it took machines out of the Spring Show in Dublin. The people who had machines to demonstrate wanted to do it in a practical way and in a practical forum where the buyers were likely to be able to test it in the middle of a big green field and not inside a building in the heart of Dublin. I cannot see any swing back in this regard in the future, even though Punchestown is ideally located, but as far as machinery is concerned, I cannot understand why most of the exhibitors at the national ploughing championships are prepared to pay very high rates to have their machines demonstrated there if they can get cheaper rates at Punchestown. It is only a technical question and I have no idea what the answer is, but perhaps the Punchestown complex is much cheaper for exhibitors and that is why some of them are using it. One of the great success stories of the last five years has been the Tullamore show. That has really replaced the Spring Show in the sense that all the breeding societies go there. I was there myself and it is a sight to see compared with any show in Europe, all the more remarkable in that it has sprung up in the midst of County Offaly. The witness should bear in mind that unless the equestrian side of the business is going to expand, and I hope that it does as there is a huge future for it, the complex at Punchestown will hopefully not have to depend on machinery or livestock to a great degree in the future as it will not be able to compete, unless there is an alternative avenue that I cannot see. From this committee’s point of view, we can only hope that there will be other projects that have good and genuine social and economic reasons which will allow them to be fast tracked to the same degree as this in all Departments. I have been on this committee for a year and there has not been a single Thursday we do not find great flaws in the budgetary controls and mechanisms with which we are presented. We know that we are not living in an ideal world and that these things will happen, but they are happening every Thursday. I hope that the next time there are projects that should be fast tracked, this will be seen as a precedent because, in our experience, this project has been progressed extraordinarily fast.
Mr. Malone: As regards Teagasc, its budget was not reduced, it was increased.
Deputy Connaughton: Ballinamore was axed.
Mr. Malone: Yes, decisions have to be made, but I am making the point and life moves on. In fact, Teagasc got fairly considerable grant assistance for capital expenditure over the past number of years.
Deputy Connaughton: Nothing compared to what they actually wanted to run their-----
Mr. Malone: They got substantial capital expenditure and their educational facilities, for example, have been substantially geared up right across the country. I accept the point about the equestrian side. The argument is about the machinery and the success of the ploughing championships has centred very much on the machinery exhibits. Also, at that time of the year, there is a big social dimension to it. There is an issue about the ploughing championships reaching the limit in terms of size and numbers. We consulted the machinery people who said they would use the Punchestown facility, which they have done and will continue to do. In respect of livestock, the Deputy is quite right about Tullamore and the change in the RDS and the old Spring Show, but if one is going to have a serious international event it has to be reasonably close to Dublin and reasonably near airports, which is the strength of Punchestown.
Deputy Curran: To start with the Department of Finance, effectively you are saying that with the exception of creating a subhead, the Department of Finance has no other role in this project. Am I right in summarising it like that?
Mr. Carey: In this particular project?
Deputy Curran: Yes.
Mr. Carey: No. What I said was that, on the one hand, there was a policy element, the Minister for Agriculture and Food was seeking agreement on the policy of State aid for this project and also on the public good of the 100% financing and, on the other hand, there was a technical requirement that this was a new service which required a new subhead that could not be paid for out of any existing subhead and if we had allowed that, the Comptroller and Auditor General would have been after us.
Deputy Curran: So the subhead was one aspect-----
Mr. Carey: A technical aspect.
Deputy Curran:-----and the other aspect was the policy issue.
Mr. Carey: Yes.
Deputy Curran: Just so I understand this, was the policy issue to be addressed? Could the Department either give a grant, or a grant for this specific project as opposed to-----
Mr. Carey: As what?
Deputy Curran: That is what I am asking. What was the question of policy that was raised?
Mr. Carey: The question was whether the State should assist this project which had been submitted by the Minister and, in the light of the public good element, should the State assist to 100%. That was the basic policy element and the Accounting Officer also said that earlier.
Deputy Curran: Just for my own information, how did the Department of Finance make that policy decision? What were the criteria used to make that decision?
Mr. Carey: Sorry, I do not make policy decisions.
Deputy Curran: No, I am not asking you to.
Mr. Carey: The Minister makes policy decisions.
Deputy Curran: So the Minister decided? Fine. Going back to agriculture for a moment Mr. Malone. In your opening statement you said that both you and the Department had identified, for a number of years, the need for a facility such as this. I suppose the purpose of this committee is to look at value for money in procedures and so forth, but it begs the question, looking back on it, did you do anything about trying to find a venue or advertise for a partnership? Punchestown made the advance and the opportunity was afforded to them but would other players who had venues have been aware of it and could they have made submissions, or was it restricted to Punchestown only?
Mr. Malone: No, it was not restricted to Punchestown. The reality is that no concrete proposal came forward.
Deputy Curran: Did you advertise?
Mr. Malone: We did not advertise. Over the years there had been one or two informal discussions with other centres but none of them came forward. The reality is that when one looks around the country where are the options? Where is there a facility with good access-----
Chairman: Millstreet.
Mr. Malone: Millstreet is a different event, and actually Millstreet is a different type of facility. Millstreet actually got grant assistance, but Millstreet actually does not fit the bill here.
Deputy Curran: I do not want to look at individuals, I just want to know whether other venues were afforded an opportunity.
Mr. Malone: It did not arise. Punchestown came forward; nobody else came forward.
Deputy Curran: From one of the practical questions, just looking at the report, when did Punchestown get planning permission?
Mr. Malone: As far as I am aware, Punchestown got planning permission. Just to be clear, this was subject to planning permission.
Deputy Curran: Yes, I appreciate that.
Mr. Malone: We will get the date for you. I think it was towards the end of 2000 or early in 2001.
Deputy Curran: So they moved fairly quickly on it.
Mr. Malone: They moved fairly quickly and they had to get planning permission; there were requirements set by Kildare County Council.
Deputy Curran: The end of 2000?
Mr. Malone: It is possibly even 2001, I suspect.
Deputy Curran: The reason for my questioning this is that as a result of getting planning permission the cost to the Department went up by €1.5 million to comply with various conditions. What were those conditions specifically?
Mr. Malone: Two items were that Kildare County Council insisted on additional car parking facilities and also insisted on a sewage treatment plant. Those two had to be provided as a condition of the planning permission.
Deputy Curran: So that was the additional cost? Just one or two more quick questions. In respect of the agreement, I have never seen a grant like this from the Department, but I am aware of other grants. As I am a Dublin based Deputy the most common grant we see is the sports grants. One of the things I am aware of with the GAA and other clubs which get grants is that there is a fair degree of legal requirement, as in title to the land and so forth. Clubs engage solicitors and I am surprised in this instance that you were able to complete the whole agreement without involving any legal professionals, without even being involved in a complex contract. It is not the way I would have observed sports capital grants going to clubs and so forth. Would you like to comment on that?
Mr. Malone: Yes. As I said earlier, we are going to revisit that particular aspect. The points made by the Comptroller and Auditor General have been taken on board. We use the same process that we use in giving grants in the food industry and that is the normal way of proceeding. We did have sight of deeds of title and legal documents and the background to the process. We knew when we were dealing with it that we had all of that, but we take the point and we are going to address that.
Deputy Curran: Finally, I listened to Deputy Connaughton and Deputy McGuinness and I also find it extraordinary in many ways that while you saw the necessity for the project and provided the capital, there was no business plan, or if there was, we are certainly not seeing it. Without that business plan I would have felt that giving the grant was a high risk manoeuvre as it was in danger of becoming a white elephant or unusable, or Punchestown acquiring such a level of debt that they would not be able to continue in business. For the life of me I find it very hard to understand how the project advanced without that business plan. With any grant application this is a basic requirement. You have already said that there was no business plan so there is no question as such, but I find it surprising that the whole process was undertaken without that business plan.
Deputy Boyle: I know we have been here for a while and I will try to be brief. I too find it hard to come to terms with the concept of a lack of applications being received when they were not sought. I will have the pleasure of listening to the Minister for Finance in a few minutes when he tries to explain that concept to me. This concept of having new projects born in the middle of a process is disturbing. There is an idea that cost over-runs will disappear because the first project did not come into being. Then the second project emerges and costs twice as much as the original project. I do not wish that to become a legal principle, otherwise this committee will be out of business. I question the changeover between the first and the second proposals. Was there any other external process? The first proposal came about because of the meeting with the Minister for Finance and the letter from the Minister to the Department. Was there a subsequent meeting with, or letter from, the Minister for Finance concerning the second proposal?
Mr. Malone: Not that I am aware of. I have never seen one. We engaged with Punchestown and they came forward with the second proposal. The second proposal came directly into the Department. It was not addressed to the Minister for Finance; it was addressed to an official.
Deputy Boyle: Subsequent to the first letter, was any other correspondence received from the Minister for Finance himself or from any other public representative about this project?
Mr. Malone: No.
Deputy Boyle: On the question of inclusivity and the fact this will be of benefit to the population in general, the fact that the Kildare Hunt is involved is something that would exclude a lot of people. I have qualms about public money being given to such an organisation, given their other activities. I assume that was not part of the analysis done about the potential usage of this facility. My question on the strategic management initiative is probably better directed to the Department of Finance. I generally welcome this degree of autonomy within the Civil Service. If a project such as this comes into being, what limitations are placed on it? Is there a factor after which warning bells are set off and the Department of Finance feels the need to intervene? If a project was IR£2 million and ends up being IR£500 million is there a process where the Department of Finance feels the need to come in? Is there a cash limitation on any independent decision that can be made within each Department?
Mr. Carey: On the public expenditure division side we, that is, the Government, the Dáil, the Oireachtas, allocates a certain amount of money to each Minister and each Department under various subheads. A Department which engages under the delegated authority in a project may return to the Department of Finance because something has gone wrong, or they seek advice - the Department is always available to give them advice - and that is a matter for them. The guidelines which are issued by the Department of Finance to Departments exist for their benefit. If they need any assistance in the interpretation of these guidelines or any other advice on whether they are in accord with these guidelines, of course the Department of Finance is there to help them. As to whether we look over their shoulders to see if they have over-run, Departments have to send in a monthly return of expenditures and we would see in the aggregate whether things are going to budget. We would not look over their shoulders on a regular basis to see whether they are on target with whatever project they are engaged in. That is a matter for the management of the Department.
Deputy Boyle: In no circumstances whatsoever? Even if it is glaringly obvious on a month to month basis that something is going off the rails badly?
Mr. Carey: We look at these things in the aggregate on a month to month basis. The Department of Finance is never happy when a doubling in the cost of a project occurs. However, as in this case, there may be a perfectly reasonable explanation for it. Two weeks ago, the Comptroller and Auditor General, said that if a project increases from €5 million to €10 million it would not be the end of the world because there could be very valid reasons for it.
Deputy Boyle: When it goes from €5 billion to €10 billion we should be worried.
Deputy McGuinness: It would be the end of the company.
Deputy Boyle: How far can the independence given to Departments exist? When it ceases to exist when and how does the Department intervene?
Mr. Carey: They are given an allocation for various services. Within that allocation, we have to be satisfied that there are appropriate systems in place, that they are aware of our guidelines about capital appraisal, that there are proper management skills and so on. It is geared to avail of this autonomy in the way that the Government wants it done. Thirty years ago when I started dealing with such matters, we would go through a proposal for a box of matches with a fine toothcomb. That has all changed. It is evolving daily. The guidelines for capital appraisal are being reviewed at the moment. We asked the Comptroller and Auditor General to give us the benefit of any suggestions he had. If this committee has any suggestions or views, we would be happy to take them on board.
Deputy Boyle: I have one final question for the Department of Agriculture and Food. Is there a condition about reporting from the company to the Department concerning its everyday activities as a commercial entity?
Mr. Malone: Yes. We have to get information from the company about what are called the non-core events.
Deputy Boyle: Is that done on a more regular basis than a company would be obliged to report to the Companies Office? Is there a direct communication system?
Mr. Malone: Yes. We have an on-going relationship with Punchestown. We will be monitoring very closely the progress of this event centre. We will obtain information on the number of events and the kind of events. In particular, if it was made available for an event that we felt was not suitable or clashed with an agricultural activity, we have a power of veto.
Deputy Boyle: There is a Punchestown complex which is used for other purposes, for example, racing and music events. Is the partial use of this facility for something of a more general commercial nature on the Punchestown complex allowed?
Mr. Malone: It is not suitable for music events.
Deputy Boyle: I meant as an ancillary facility.
Mr. Malone: We would not prevent that if it helped the viability of the centre.
Deputy Boyle: It would add to the commerciality of the general Punchestown facility-----
Mr. Malone: Yes.
Deputy Boyle:-----and the benefit would be given to the general Punchestown facility not to the company responsible for the centre.
Mr. Malone: No. If the centre is used then any profits made will have to be put back into the centre.
Deputy Boyle: There would have to be a commercial relationship between the racecourse and the event centre.
Mr. Malone: There is a commercial relationship.
Deputy McGuinness: There was a comment made about the Comptroller and Auditor saying that if there was an increase in the cost of a project it would not be the end of the world. It might be worthwhile discussing that. I would not buy into it. Perhaps at another meeting, in the context of the invitation issued from the Department official, we should put forward suggestions.
Chairman: We would be delighted to facilitate it.
Mr. Carey: My reference to the end of the world was a quote from the records of the last meeting of this committee.
Chairman: That was Mr. Purcell’s comment. Perhaps Mr. Purcell could explain it.
Mr. Carey: I know what he meant and the context in which he said it.
Mr. Purcell: It is just as well to bear in mind the context of what I said. There is nothing wrong with that if there are justifiable reasons for it. It may well be that one gets a better system or a better facility as Mr. Malone suggested today. One cannot say when X does not equal 2X, that it is wrong. I am delighted to hear what Deputy McGuinness has said about the committee getting involved in capital appraisal guidelines and what should be done. It is very important especially in the context of the loosening of the arrangements for approval from the Department of Finance. I am surprised to learn that they had been loosened to the extent suggested by Mr. Carey. Echoing what Deputy Boyle said, while one does not have to sanction the purchase of paper clips, I do not believe that there is no limit. For significant projects, the sanction of the Minister for Finance is needed. There are limits. We are entering dangerous territory if one simply says that it is looked at in aggregate every month and that a Department may seek advice from the Department of Finance if necessary. The Department of Finance has not shaken off its traditional mantle to that extent. I can put that on the record. There are capital appraisal guidelines in this particular case which date back to 1994-95. They need to be up-dated and are being up-dated. However, it is no use up-dating them if they are not applied. Certainly they were not applied in this case. There may be justification in this particular case, as the Accounting Officer has said, and that is a matter for judgment on the part of the committee. If one has guidelines, one should apply them. Where responsibility for appraisal is being delegated, it behoves the Department of Finance in this brave new world to have some assurance that they were being applied. Accounting Officers will have to state this more or less specifically in their new statement on internal financial control which will have to accompany the Appropriation Accounts in the future as part of new corporate governance arrangements.
Chairman: Thank you, Mr. Purcell. It does not appear that we can dispose of this chapter today. I hope the committee can visit the centre and that we can get agreement at the next meeting in private session. I would like to see the centre as we have heard so much about it today. It would be very effective for our overall assessment if we could meet with the board of Punchestown and see the centre.
Deputy Boyle: Would we be supplied with horses?
Chairman: I am anxious to see the centre and the whole economy of scale.
Deputy McGuinness: The Chairman asked a very relevant question at the beginning. By visiting the centre and by meeting the board perhaps we can have the other questions that were not answered, answered more fully.
Chairman: I propose that. Would Deputy McGuinness second it?
Deputy McGuinness: Yes, Chairman.
Chairman: I call Deputy McGuinness for a last question.
Deputy McGuinness: Is the Chairman disposing of this Vote today?
Chairman: No.
Deputy McGuinness: When we are discussing the Vote, could we have a note on the beef tribunal? We paid out almost a million in 2002 and the running cost is €26.5 million. Can the Department give us some idea of the structure of those costs or the costs of legal fees? In the current tribunals, it is said that some of the legal representatives get X amount per day. Can we have some notion of those costs so that we can have a fuller debate on the matter?
Chairman: Does Deputy McGuinness want any information on this today?
Deputy McGuinness: I am anxious to discuss it in more detail. I would be pleased if it could be provided in a note.
Mr. Malone: I can give it to the committee now. We have almost disposed of all of the claims under the beef tribunal.
Deputy McGuinness: Chairman, it will do in a note.
Mr. Malone: I can send you a note.
Deputy McGuinness: I am asking about the costs involved-----
Mr. Malone: The futuristic costs.
Deputy McGuinness: ----and the rate per day. I am anxious to obtain the details.
Mr. Malone: The Deputy wishes to know how much per day?
Deputy McGuinness: Yes and who got what.
Mr. Malone: You want the breakdown.
Deputy McGuinness: That is the general idea so that we can make a comparison with the other tribunals.
Mr. Malone: We can do that.
Deputy McGuinness: Benchmarking for tribunals.
Chairman: Perhaps Mr. Malone could give us the total cost, an overview of all the legal fees.
Mr. Malone: I can give them now, if the committee wishes. The total cost to date, up to 16 October, was €26.4 million. The main breakdown is for the legal fees. The legal fees for the State and tribunal legal teams were €4.6 million, administration costs were €3.4 million, various banking charges and withholding tax issues came to €1.8 million, and the actual cost, what is termed the cost orders, are €16.5 million. There are 77 cost orders in total. We have paid 62 to date and our assessment is that will be an additional €3.1 million.
Deputy McGuinness: We will have to debate it again, Chairman. Could we have a copy of that note?
Mr. Malone: Yes it will be given to the committee.
Chairman: Is there any refund coming from the temporary settlement with the Goodman group?
Mr. Malone: That has been resolved. Some €3.7 or €3.8 million has been paid.
Deputy McGuinness: That is money coming back in?
Mr. Malone: Yes.
Deputy McGuinness: Is that the only money coming back in?
Mr. Malone: Yes. That related to a specific issue.
Chairman: Can we agree the agenda for the next meeting on Thursday, 13 November? The Department of Enterprise, Trade and Employment, Vote 34, Chapter 11.1 next Thursday at 11 a.m. Is that agreed? Agreed.
The Committee adjourned at 3 p.m. until 11 a.m. on Thursday, 13 November 2003.
Dé Máirt, 16 Nollaig 2003.
Tuesday, 16 December 2003.
The Committee met at 10.30 a.m.
MEMBERS PRESENT:
Deputy S. Ardagh, |
Deputy J. McGuinness, |
Deputy D. Boyle, |
Deputy M. Noonan, |
Deputy P. Connaughton, |
Deputy B. O’Keeffe, |
Deputy J. Curran, |
Deputy P. Rabbitte. |
Deputy J. Higgins, |
Deputy J. Perry in the chair
Public Session
Mr. J. Purcell (An tArd Reachtaire Cuntas agus Ciste) called and examined.
2002 Annual Report of the Comptroller and Auditor General and Appropriation Accounts.
Vote 31 - Department of Agriculture and Food - Chapter 9.1 (resumed).
Horse Racing Ireland - Financial Statements 2002
Mr. John Malone (Secretary General, Department of Agriculture and Food) called and examined.
Mr. Brian Kavanagh (Chief Executive, Horse Racing Ireland) called and examined.
Chairman: We are dealing with the appropriation accounts of the Department of Agriculture and Food. Specifically, we are resuming our discussion of chapter 9.1 of the report of the Comptroller and Auditor General which concerns the exhibition and show centre at Punchestown. We are also dealing with the financial statements of Horse Racing Ireland for 2002. Witnesses should be aware that they do not enjoy absolute privilege. As and from 2 August 1998, section 10 of the Committees of the Houses of the Oireachtas (Compellability, Privileges and Immunities of Witnesses) Act 1997 granted certain rights to persons who are identified in the course of the committee’s proceedings. These rights include the right to give evidence, produce or send documents to the committee, appear before the committee either in person or through a representative, make a written and oral submission, request the committee to direct the attendance of witnesses and the production of documents and the right to cross-examine witnesses. For the most part, these rights can be exercised only with the consent of the committee. Persons invited before the committee are made aware of these rights and any person identified in the course of proceedings who is not present may have to be made aware of them and provided with the transcript of the relevant part of the committee’s proceedings if the committee considers it appropriate in the interests of justice. Notwithstanding that provision in legislation, I remind members of the long-standing parliamentary practice to the effect that members should not comment on, criticise or make charges against a person outside the House or an official either by name or in such a way as to make him or her identifiable. Members are also reminded of the provision under Standing Order 156 that the committee shall refrain from inquiring into the merits of a policy or policies of the Government or a Minister of the Government or the merits of the objectives of such policies. I welcome Mr. Malone and ask him to introduce his officials.
Mr. John Malone: I introduce Mr. Aidan O’Driscoll, Mr. Jim Beecher and Mr. Denis Byrne, all of whom are assistant secretaries in the Department of Agriculture and Food.
Chairman: I welcome Mr. Brian Kavanagh of Horse Racing Ireland to the committee for the first time.
Mr. Brian Kavanagh: Thank you, Chairman. I am accompanied by Ms Margaret Davin, chief financial officer, and Mr Raymond Horan, company secretary, of Horse Racing Ireland.
Chairman: The Department of Arts, Sport and Tourism is represented.
Mr. Con Haugh: I am Con Haugh, assistant secretary in the Department of Arts, Sport and Tourism. I am accompanied by Mr. Seán McCartan, assistant principal officer in the Department.
Chairman: The Department of Finance is also represented.
Mr. Robert Carey: I am Robert Carey, principal officer, of the Department of Finance and I am accompanied by Mr. Brendan Ellison, assistant principal officer, of the Department.
Chairman: I ask Mr. Purcell to introduce the 2002 accounts.
Mr. John Purcell: As the committee will be aware, it last considered chapter 9.1 of my report in public at its meeting on 6 November. Since then, the committee has visited the event centre at Punchestown and discussed the issues arising with the management of the centre. The committee has also received additional documentation pertaining to the centre and has addressed the matter in private session. The committee is familiar with the facts surrounding the development of the event centre and I will not go over that ground again. The main public accountability issues arising from the committee’s examination to date appear to be the extent and quality of the business case made for the centre and the evaluation of the proposal ultimately adopted; the extent to which the centre is being used for the purposes for which it was funded; whether the State’s interest in the development is adequately protected and whether the conditions in the agreement are being complied with; the extent, if any, to which the event centre is subsidising the operation of the racecourse; and whether the State is getting good value for its 100% funding of the centre. In the context of the broader operation of Punchestown, the committee was interested in the level of State funding that had been provided in recent years to the racecourse. Over and above the financing of the event centre, €8.2 million has been given to Punchestown since 1997 in capital development grants through Horse Racing Ireland or its predecessor, The Irish Horseracing Authority, together with a loan of €1.65 million. As I understand it, there is also a €2.5 million loan on the table from Horse Racing Ireland since November 2002. Although agreement has been reached with Punchestown about the necessary revised corporate arrangements, I am not sure and perhaps Mr. Kavanagh will clarify whether the agreement has been ratified yet. The committee will be aware that the agreement provides for settlement with the company which made an investment in Punchestown under the so-called passports for sale scheme. On Horse Racing Ireland’s accounts for 2002, the body was established on 18 December 2001 under the Horse and Greyhound Racing Act 2001. It replaced the Irish Horseracing Authority as the statutory body with responsibility for horse racing in Ireland. During 2002, Horse Racing Ireland also took over certain functions from the Turf Club. Governmental responsibility for the new organisation moved from the Department of Agriculture and Food to the Department of Arts, Sport and Tourism in June 2002. As committee members will see from the accounts, Horse Racing Ireland’s remit is quite wide. As well as overseeing the development of the horse racing product through the improvement of racecourse facilities, the provision of significant contributions to prize money and the planning of the fixture list, the group has subsidiaries that operate the Tote and promote the Irish thoroughbred horse. It also owns the racecourses at Leopardstown, Navan and Tipperary and the land at Cork. These are also run through subsidiaries. The group accounts and those of the subsidiaries are subject to audit by me, and under the 2001 Act, they come within the terms of reference of this committee. Horse Racing Ireland’s annual subvention from the State is channelled through the horse and greyhound fund. The fund is financed from Vote moneys to an amount broadly equivalent to the excise duty paid on off-course betting. Some 80% is allocated to horse racing and 20% to greyhound racing. In the period under review, which is slightly longer than a year, Horse Racing Ireland received €56 million from this source. Prize money totalled €43.5 million, of which €26.5 million was funded by Horse Racing Ireland, with the balance of €17 million met by owners and sponsors. The committee will see from the balance sheet that the group is in a strong financial position. This is mainly due to the transfer of land in 2001 to Dún Laoghaire-Rathdown County Council for the Southern Cross motorway. The deal with the Irish Horseracing Authority involved a cash amount of almost €30 million and a transfer of land valued at €7 million from the council to the authority. As I understand it, the proceeds are earmarked mainly for the redevelopment of Leopardstown racecourse.
Mr. Malone: I do not have a formal opening statement. The committee will recall that I made an opening statement on the previous day. I do not know whether I am permitted to make a few brief points-----
Chairman: Yes, by all means.
Mr. Malone: Some of them are a repetition of the points I made the previous day but it is important that they are repeated. This project should be seen in the context of filling a gap in the infrastructure for the wider agriculture sector. Punchestown was the only realistic location in terms of its access, facilities and availability of a substantial amount of land. I hope I made this point clearly the previous day. It is also important to note that no other sponsor or alternative proposal has come forward either before or since. Another important consideration is the nature of Punchestown. The committee is familiar with the fact that it is a trust, which is important. There was much discussion the previous day on the dates and sequence of events, but I emphasise that the project was carefully considered in the Department of Agriculture and Food. It was a different project in the sense that it was not strictly commercial. In that context we had nothing against which to evaluate it and had to apply different criteria to those that would apply in a normal commercial project. It is important to emphasise that Punchestown has taken on responsibility for the management and running of the project and the events centre. The harsh reality is that, unless there was a 100% grant, this project would not exist. It may be helpful to clear up one or two points of detail. There appeared to be some confusion about equestrian eventing and showjumping. I do not want to get into technicalities but it is important to understand that eventing covers a number of disciplines, including showjumping, dressage and cross-country riding. Thus, substantial amounts of land are needed, and it is in that context that Punchestown is such an ideal facility. Equestrian eventing benefits the Irish sport horse industry in which about 10,000 people are involved. It is not a massively profitable enterprise for anybody and there is a big difference between sport horses and thoroughbreds. This is not the type of event that carries substantial prize money. To repeat another point I made the previous day, the choices we had were total rejection and no funding; accepting the first project, which we went through in detail the previous day; or accepting the second project, which was more elaborate and more expensive. We went for the second option. I know issues have come up that we must reflect on, but with the benefit of hindsight I still feel that we made the right basic decision. Mr. Purcell has touched upon issues in regard to the legal agreement, and I indicated the previous day that we are taking that point on board. We are in discussions with Punchestown and have sent them the heads of an agreement. We will finalise that in the weeks ahead, so we are taking that point on board and have noted it carefully.
Mr. Kavanagh: I will deal with Punchestown at the end of my statement. The Comptroller and Auditor General has said a great deal of what I am going to say. Since 1945, the horse racing industry has always been the responsibility of a semi-State body. First it was the responsibility of the Racing Board and, since 1995, of the Irish Horseracing Authority. Legislation was enacted in 2001 to restructure the way in which racing is administered and financed. Horse Racing Ireland was established to replace the Irish Horseracing Authority, and a number of the activities previously carried out by the Turf Club in the administration of racing were transferred to this new organisation. The board of Horse Racing Ireland comprises 14 members representing all the constituent elements of the industry, including Northern Ireland. Racing and breeding have always been administered together as a 32-county sport. All foals born in Northern Ireland are deemed to be Irish-bred and carry the IRE suffix after their names. The board members are democratically elected by the various representative associations within the industry, principally racecourses, bookmakers, owners, trainers, breeders and persons employed in the industry. The Turf Club remains as an independent body with responsibility for regulating the sport. It is responsible under legislation for ensuring that the rules of racing are adhered to and that the integrity of the betting product is maintained. Most significantly, the new legislation provided security of funding for horse and greyhound racing, which had not previously existed, by way of the establishment of the horse and greyhound racing fund which is financed principally by the excise duty raised on off-course betting. Such a funding arrangement is consistent with the principle applied worldwide, namely, that betting finances racing. This security of funding has enabled both industries to develop long-term strategic plans to ensure sustained employment, economic activity and growth. As Mr. Purcell has pointed out, we were established on 18 December 2001, so the accounts before the committee cover a 54-week period and are the first set of accounts produced by our organisation. The busy Christmas racing period, including the festival meetings at Leopardstown and Limerick, are therefore included twice, which has an obvious impact on the accounts of the Tote subsidiary and the racecourse division in particular. In addition to its core activities, Horse Racing Ireland has three principle subsidiary companies: HRI Racecourses, which owns Leopardstown, Navan, Cork and Tipperary racecourses; Tote Ireland Limited, which operates the on-course and off-course Tote system; and Irish Thoroughbred Marketing, an independent company responsible for developing and exploiting export markets for thoroughbreds. In recent years all the key economic indicators for horse racing have shown sustained growth, and the security of funding has enabled capital infrastructure projects which were neglected for so long to be put in place. Irish horses, trainers and riders have distinguished themselves on the world stage and, in recent years, racing has probably been our most consistently successful international sport. Backing up the sporting and social aspect of racing, however, is a substantial industry which generates significant employment and economic activity. It is an industry in which Ireland has genuine claims to being a world leader. The industry employs 11,000 people full-time and, when part-time employees and full-time staff in associated industries are taken into account, approximately 25,000 people earn their income from racing, betting and breeding. It is also important to consider that many of these jobs are largely based on indigenous skills, are environmentally friendly and are located in rural areas. In a generally declining agricultural sector, bloodstock breeding has in recent years been the fastest growing element of agricultural output to the extent that Ireland is now the third largest producer of thoroughbreds in the world, accounting for more than 40% of EU output. Ireland produces more foals than Britain and France combined. Only Australia and the United States produce more thoroughbreds and, when the quality and performance of the horses being produced is considered, we are a genuine contender for the number one position. This has led to significant exports and, perhaps more importantly, to substantial inward investment in the economy by major international owners and breeders. Last year was a successful one for Irish racing and I am pleased to report that 2003 has shown further growth on all indicators. Almost 1.3 million people attended the 258 fixtures held in the Republic last year, giving an average of just under 5,000 per meeting. This figure compares favourably with corresponding figures in Britain, France and Australia. The number of horses in training and the new owners registered reached an all time high, and on-course betting, between the Tote and bookmakers combined, amounted to €208 million. Off-course betting in betting shops totalled €1.6 billion 2002 and is expected be close to €2 billion this year. Last year was also a transition year for Horse Racing Ireland as a completely new executive team was put together and the organisation relocated from Leopardstown to Kildare. This relocation is reflected in the establishment and reorganisation costs shown in the accounts before the committee. The principal expenditures for the organisation in the year were prize money, racecourse capital development grants, including a much needed health and safety scheme, loan repayment on previous racecourse development schemes, and payments to industry bodies such as the Racing Academy and Centre of Education in Kildare which is responsible for the training of staff and riders for the industry, the Irish Equine Centre in Johnstown for research work to maintain our disease free status, the Order of Malta and the Blue Cross for the provision of medical and veterinary facilities at race meetings, and the Turf Club for the provision of integrity services at race meetings. A breakdown of these payment figures is provided on page 26 of the accounts. On the issue of Punchestown, towards the end of 2002, Horse Racing Ireland proposed a rescue package, which was accepted by the owners of Punchestown, which would see a joint venture company established and owned 50% each by Horse Racing Ireland and the Kildare Hunt Club to run the racecourse and event centre for the next 15 years. In that period the hunt club would have the opportunity to repay all outstanding funding which had been provided to resume full ownership of the lands at Punchestown. Failure to do so would see full ownership of the approximately 250 acres comprising the racecourse and the event centre transfer to Horse Racing Ireland. This company, which is called Punchestown Holdings Limited, has been established and ten directors have been appointed - five from Horse Racing Ireland and five from the Kildare Hunt Club. It is now operating the racecourse and event centre on foot of a management services agreement signed by all parties. In the period since that proposal was accepted, Horse Racing Ireland has appointed a manager, Mr. Dick O’Sullivan, to run Punchestown and it has seen an improvement in its fortunes this year. The festival meeting held there last April was the most successful ever with record crowds and betting figures. I understand that a profit of approximately €150,000 is forecast for the entire operation at Punchestown this year of which approximately one third will derive from the event centre. In March of this year, Horse Racing Ireland published a new five year plan for the industry to bring it through to 2007 and we are on target to achieve all the forecasts included for year one of that plan. We are in the process of updating the plan to provide the rolling five year figures required under legislation in accordance with the Government’s strategic management initiative. I hope I can be of assistance to the committee.
Chairman: What is the name of the company formally known as Newco?
Mr. Kavanagh: Punchestown Holdings Limited.
Chairman: Was the agreement involving the advancement by Horse Racing Ireland of €12.3 million and the latter loan of €2.5 million conditional on the agreement being signed?
Mr. Kavanagh: Yes, it was. The agreement was ratified at a meeting of the Kildare Hunt Club late last year and was ratified again at a meeting held about three weeks ago after the Committee of Public Accounts had visited Punchestown. The funding was conditional on that and on getting Revenue clearance for the structures that are in place in Punchestown. That process is under way at present.
Chairman: Has the €2.5 million been advanced?
Mr. Kavanagh: Not yet.
Chairman: Of the €12.3 million, has €10 million in effect been advanced by Horse Racing Ireland to the holding company?
Mr. Kavanagh: Some €8.2 million in grants for the Punchestown development was advanced by the Irish Horseracing Authority between 1995 and 1999, which is consistent with the capital developments that were taking place on all racecourses in that period. A loan of €1.65 million was advanced in 2001 when, as the committee may be aware, Punchestown lost its festival meeting due to a problem with the drainage of the track. That problem precipitated a financial crisis and the Irish Horseracing Authority advanced a loan of €1.65 million. However, the €2.5 million has not been advanced yet.
Chairman: The amount outstanding is a loan. Is it an interest bearing loan?
Mr. Kavanagh: Yes, it is bearing interest at the average EURIBOR rate.
Chairman: If one takes the investment in the centre plus Horse Racing Ireland’s own loan of €10 million, it would appear that €25 million has been provided.
Mr. Kavanagh: Yes, the €10 million relates specifically to the racecourse element of it but, between the two, that would be the figure.
Chairman: Is the repayment in 2016 for the €12 million?
Mr. Kavanagh: No, it is the repayment of the loan of €1.65 million plus the future funding of €2.5 million that may be advanced. It is the repayment of €4 million. The €8.2 million or £6.4 million was capital grants provided by the Irish Horseracing Authority to Punchestown to build up its racecourse facilities. They become repayable only in the event that racing ceases. If racing continues for 15 years, these funds do not become repayable. This same policy is applied to all racecourses.
Chairman: On the point about the Kildare Hunt Club, how much of a redemption is involved?
Mr. Kavanagh: It is a total of €4.1 million.
Chairman: It is disappointing that this agreement, which was discussed at the previous meeting, has not yet been signed. What is the reason for the delay?
Mr. Kavanagh: We have been deliberately prudent in not putting in money until we were satisfied with the structures. As the committee may be aware, there has been disagreement among the members of the hunt club about the authority which the trustees may have had to enter into certain agreements. That has been resolved and there has been agreement to modify the lease structure. We have said that we will not provide money until the leases are modified and Revenue is happy with the structure. In fairness to the Punchestown people, they have survived without that money so far by careful management of their finances. The hunt club has agreed to the transfer. We have identified the lands. The principle of the restructuring put in place was that the lands used for horse racing and the event centre would be separately identified from the 466 odd acres of land and would go into this new joint venture company which would be owned 50:50. The rest of the land would remain with the Kildare Hunt Club. That land has been identified. The main reason the transfer has not taken place is because we have said we are not prepared to provide the money until these issues are resolved.
Chairman: On the structure, the Kildare Hunt Club owns the lands at Punchestown. It carries on its business through three operating companies in which the hunt has 100% of the share capital. It has leased its land bank for 250 years to Punchestown Development Company which owns the racing facilities at Punchestown. A sister company, Blackhall Racing Company, manages the events which take place at the racecourse. A third company, Punchestown Enterprise Company Limited, owns and operates the centre. Mr. Kavanagh is now indicating that a new company is being formed.
Mr. Kavanagh: It will be an overarching holding company which will own the shareholdings of the three subsidiary companies. They set up that structure so that they have one company to develop the racecourse, one to develop the event centre and one to run the race meetings. Punchestown Holdings will take over the shareholdings of those companies.
Chairman: On the clear title of that deal that will be signed, is there any doubt about the agreement and what that company can effectively manage when one takes account of the myriad of companies involved?
Mr. Kavanagh: No, we have held off on putting any money in until the title to the land is clarified and the Revenue clearance is received.
Chairman: Do you see any difficulty in that area?
Mr. Kavanagh: No, we have been working closely with the people in the Kildare hunt. The club has ratified it twice and effectively sees Horse Racing Ireland as a partner in this. We have been running the racecourse on its behalf for the past year and the effect seems to be positive. I do not see any problems with that.
Deputy Ardagh: The first noticeable aspect is the importance of the horse racing and bloodstock industries generally to the economy. I congratulate everybody involved to date on the huge success that is horse racing in Ireland. That includes not only Horse Racing Ireland, which is new to the game, but the Irish Horse Racing Authority and all the civil servants and organisations involved. Obviously there are a huge number of volunteers with a great interest in racing without whose help and input the system would not work. No matter what we say, it is a fabulous success story and helps the economy greatly. One question which arises regularly is that of the tax-exempt status of stud fees. Is it reasonable that this status should continue?
Mr. Kavanagh: It is not for me to decide whether a tax-free status should continue.
Deputy Ardagh: I ask from the point of view of horse racing rather than from an economic or political perspective.
Mr. Kavanagh: Undoubtedly it gives us a competitive edge in the area of horse breeding and would be looked upon with envy by a number of other breeding countries throughout the world. I mentioned earlier that our foal population is greater than that of France and Britain. That was not always the case. France had a thriving breeding industry back in the early 1980s until it changed its method of funding. It had a similar taxation arrangement to ours now but changed it. Whether it can be directly associated with this or not I cannot say, but there has been a decline in the French breeding industry. The top three stallions in France this year in terms of results on the racecourse were all Irish stallions based here. Undoubtedly it gives us a competitive advantage.
Deputy Ardagh: Returning to Punchestown, Mr. Malone said that the heads of agreement are in place. That is normally an early stage of developing an agreement, and any agreement now will obviously be with Punchestown Holdings Limited. Is that so?
Mr. Malone: By way of clarification, we sent a letter to Punchestown containing 17 different conditions which Punchestown accepted.
Deputy Ardagh: I have that.
Mr. Malone: However, the Comptroller and Auditor General expressed concern about the robustness of that arrangement so we have initiated a process whereby we will have a formal two-way legal agreement. As of now, we envisage that the agreement would be with all three companies so that there is no doubt. If Punchestown Holdings Limited is established and up and running in time, we will also have an agreement with it. We will leave nothing to chance in this regard. I emphasise that there never has been a disagreement with Punchestown on this issue. It has never said that it does not accept the responsibilities. Copies of the accounts of Punchestown were forwarded to the committee since I last appeared, and they contain a reference to its liabilities for the events centre. Punchestown has recognised this in its accounts.
Deputy Ardagh: That is contingent liability.
Mr. Malone: Yes.
Deputy Ardagh: Most of the 17 points to which Mr. Malone referred are now redundant because the centre is up and running. They refer to what will happen while the centre is being built. Which of the points will come into play? Points one to ten no longer apply while 11 would probably stand.
Mr. Malone: The Deputy is correct in that many of the conditions set out in our letter of August 2000 related to the project and its completion, proper processes and responsibilities, planning permission and various issues such as that. Mr. Purcell acknowledged that aspect in his report and I do not think he had any difficulties with it. What we envisage in the agreement is looking to the future and being clear with whom exactly we have the agreement because that was the main point of concern. We will bring clarity to that issue. We will also deal with the situation of something going wrong, for example, and whether we can get our money back. An issue that has arisen is what happens if this facility is massively profitable. I explained that I did not think it would be, but let us assume that it was and Punchestown generated huge profits from the centre. We had always envisaged that whatever profits were made would go into the centre, but if profits were made way above what was envisaged, we would want a share of them. We are looking to the future, making it clear with whom we have the agreement and covering different situations in the event of something going wrong. I emphasise that we are at the initial stages of the process and there will be a certain amount of toing and froing before it is finally signed off.
Deputy Ardagh: It appears that the horse has bolted and that there is now a new company. I do not know whether Mr. Kavanagh would be that willing to share the bucks when so many other racecourses need development. They are crying out for more prize money in Tramore, and I know they would like some more prize money in Wexford. Why should HRI agree to these new terms being considered?
Mr. Malone: The HRI involvement strengthens our hand. HRI is a State body funded by the taxpayer.
Deputy Ardagh: That is right.
Mr. Malone: We see the HRI as giving us a double protection. As Mr. Kavanagh has explained, HRI will, in effect, own 50% of this company, which gives double protection to the taxpayer. If the argument develops as to whose interests come first and a State body is involved, the interests of the taxpayer and the Exchequer must come first. I see that as a benefit rather than a problem.
Deputy Ardagh: Obviously Mr. Kavanagh will have different priorities for any money made. Will he sign whatever is put in front of him?
Mr. Kavanagh: As Deputies will have seen when they visited the events centre, it is separate from the racecourse and away from the parade ring. The restructuring that we put in place deliberately incorporated the land, including the racecourse and the events centre, specifically to provide security for the State’s investment. If the events centre turns out to be profitable, and the figures to date indicate that over the past three years it has made an average of €7,000 per year, the priority would be to invest the money in the events centre which needs to be maintained, repaired, promoted and marketed. If the events centre starts to generate substantial money, I do not see the racecourse wanting to keep that. The principle that the events centre should operate on a break even basis is accepted by us and, I believe, by the Kildare Hunt Club.
Deputy Ardagh: Looking at it from a managerial point of view, I see somewhere or other that a €50,000 profit is projected in the events centre in 2003 on the basis of a minimal number of events. Does Mr. Kavanagh project that in the next five years substantial profits will be generated by the events centre?
Mr. Kavanagh: I do not think so for two reasons. First, as I outlined, it will cost money to keep, maintain and repair and we are in a honeymoon period in that respect in the short term. Second, while there is scope for more events, if one looks at the schedule of events, the time involved in setting up and de-rigging for each event could involve a week either side of an event which might only take a week in itself. If 15 or 16 events are booked for next year, its capacity to double or treble that number of events is somewhat limited.
Deputy Ardagh: Are 15 or 16 events scheduled for next year?
Mr. Kavanagh: I am now told by my colleague that there are 20.
Deputy Ardagh: I take it that Mr. Kavanagh therefore does not think Mr. Malone should include significant figures from Punchestown in his appropriations account?
Mr. Kavanagh: I do not believe so. It would be a nice problem if it happened.
Deputy Ardagh: I am delighted that Mr. Kavanagh’s organisation has an involvement in Punchestown because the management expertise in HRI will help Punchestown and its participation in it will help racing in Ireland. I read some literature we received. Could Mr. Kavanagh explain whatever he knows about Blackhall Racing, GT Equinus, the Getty family and the connection with the repayment of redeemable preference shares?
Mr. Kavanagh: I came to this situation late. As the Comptroller and Auditor General explained, it was a passport for investment scheme which involved redeemable preference share funding. When the Irish Horse Racing Authority developed racecourses throughout the country in the late 1990s, it was on a basis of matching funding. Racecourses were required to achieve 50% matching funding and all achieved that.
Deputy Ardagh: Was that for capital purposes?
Mr. Kavanagh: It was capital for the development of stands and infrastructure. As I understand it, there was an investment, as the Comptroller and Auditor General has outlined, which was repayable on certain terms. Punchestown’s problems arose because its festival meeting, which really accounts for 90% of its annual income, was cancelled in 2001. A drainage job was done on the track which simply did not work and the track was not safe for racing. That was a terrible blow which precipitated a financial crisis and, as part of that, they have negotiated revised terms of repayment with GT Equinus. That is as much as I know about the investment.
Deputy Ardagh: A couple of questions arise.
Mr. Kavanagh: On GT Equinus, we have read the minutes of the Kildare Hunt Club. They question-----
Deputy Ardagh: I am still questioning Mr. Kavanagh on this. If Deputy Batt O’Keeffe will allow me continue, I will come to that as well. I am sure that when Horse Racing Ireland entered into this joint venture, it undertook an evaluation and business plan. From the profit generated in year one, it looks good. On the passports for sale, my understanding is that the funds are not repayable to the extent where somebody can demand repayment. Obviously there was some agreement containing a clause or condition which would allow for repayment, but that seems to go against the spirit of the passports for sale scheme as I understand it. Would Mr. Robert Carey of the Department of Finance explain that system as it applied in this case?
Mr. Carey: I am afraid I cannot. I am not an expert on the passport for sale scheme, nor was this area within my bailiwick. Certainly I can have a note on it sent to the Deputy.
Deputy Ardagh: At the end of the day, is it not the case that Horse Racing Ireland is investing money in tranches which are equivalent to the money being repaid to the Getty family through GT Equinus?
Mr. Kavanagh: I would not say so. It is not equivalent to it. It is the funding that is necessary for Punchestown to continue to operate and trade its way out of its difficulties. I suppose the difficulty we faced when Punchestown found itself in financial difficulties was that the home of national hunt racing, in which the Irish Horseracing Authority had made a significant investment, was teetering on the brink. We felt we had to put a rescue package to them which would enable it to trade its way out of its difficulties and that is the reason for the 15 year trading period up to 2016 because we had to take a long view. While Deputy Ardagh stated that the outlook is good, we are conscious that this year has been a positive one for racing, principally due to the simple fact that we have enjoyed excellent weather for all our good meetings at Galway and Punchestown throughout the year. It is a tough task to trade its way out of it.
Deputy Ardagh: Effectively, Getty invested money to match the funds for the capital and there was a family row in Punchestown between the Gettys and others. Is it true that there was threatened liquidation and possible mothballing of all the facilities involving the €25 million referred to?
Mr. Kavanagh: Yes.
Deputy Ardagh: Therefore Mr. Kavanagh’s organisation came in at that stage and the misfortune of Punchestown was a good opportunity for that organisation.
Mr. Kavanagh: I would not describe it as an opportunity. It was something on which we had to take action. Punchestown has developed and, with the instigation of the racing authorities, has developed into a credible rematch for Cheltenham, if I may put it that way. It comes four weeks after Cheltenham and Punchestown has developed its festival to a standard where it can now match that festival. It is the pinnacle of the national hunt season in Ireland. It would be unthinkable for us, as the racing authority, not to do something to protect its status, and that is what we have been doing. That is all we have been doing.
Deputy Ardagh: I am delighted that Horse Racing Ireland is involved. This note from a minute states that all HRI debts are to be placed on a schedule where the HRI had offered €3.8 million over ten years, that is, the €1.6 million it has already provided and another €2.2 million, although €2.5 million was mentioned, and that it is hoped GT Equinus would defer repayment to the same schedule. If I had a company, was in debt to Revenue and sought a loan from a bank to pay off Revenue, the bank would be reluctant to give me the loan. The effect is that the HRI loan is perceived as the moneys that can be used to pay off GT Equinus. Is that correct?
Mr. Kavanagh: As I said, it has enabled Punchestown to trade its way out of difficulty. I do not have the agreement in front of me, but what we would have found when we went to Punchestown was an agreement with GT Equinus where the first repayment was due as long ago as 1998 or 1999. Therefore it has been deferred in that respect.
Deputy Ardagh: There is talk somewhere of payments to GT Equinus of €600,000, €550,000 and two more payments of €500,000. Is Mr. Kavanagh aware of these figures? Do the amounts being invested in Punchestown by HRI match the timing or the amounts involved?
Mr. Kavanagh: No. Punchestown has managed to continue trading for a year on foot of careful management of its finances, but the funding we have put in would not match the timing of that.
Deputy Ardagh: The Punchestown Enterprise Company accounts prepared are comprehensive and, as Mr. Malone stated, include in the contingent liabilities the matter of the contingent liability to the State of the €14 million. That would be questionable without agreements in place but obviously they will be in place and will be signed. In addition, under the plan, the €3.18 million owing to the Blackhall Racing Company, holders of the redeemable preferred shares, may be satisfied in full by the payment of €2.15 million in four instalments. This has yet to be formally agreed by the shareholders. Has HRI agreed to that schedule?
Mr. Kavanagh: Yes, we are aware of the schedule.
Deputy Ardagh: Does Horse Racing Ireland intend agreeing to it?
Mr. Kavanagh: Yes, it was part of the rescue plan put forward last year.
Deputy Ardagh: There is an indication that the taxation contingent liability, an issue which permeates much of the literature in my possession, may be substantial. Has Horse Racing Ireland had discussions with Revenue about it?
Mr. Kavanagh: No, we certainly have not gone further than instructing Punchestown, as the Kildare Hunt Club, that we want Revenue clearance for this structure. We would not, however, get involved in talking to Revenue about the matter.
Deputy Ardagh: Has Horse Racing Ireland discussed a ballpark figure? I presume it conducted a due diligence examination of the company.
Mr. Kavanagh: Yes.
Deputy Ardagh: Did the question of the contingent liability not arise during the due diligence examination?
Mr. Kavanagh: As I stated earlier, there are different views as to what should be the tax treatment of the structure. What we have said is that we want the company to get clearance from Revenue as to what it is doing.
Deputy Ardagh: If Mr. Kavanagh believes further questioning would prejudice his case, which I do not wish to do, I would have no problem accommodating him.
Mr. Kavanagh: I feel somewhat uncomfortable talking about the specifics of the case other than to say that we have instructed that Revenue clearance should be sought.
Deputy Ardagh: I accept that.
Deputy J. Higgins: I will first address some questions to Mr. Malone. The key question here is not whether the exhibition centre at Punchestown is a good thing, but the appropriateness of the procedures which led to the sanctioning of significant amounts of taxpayers’ funds to build the event centre. The additional funding came on stream at different times. When did building begin?
Mr. Malone: The construction of the building began at the end of 2000.
Deputy J. Higgins: When was it finished?
Mr. Malone: It was completed in 2002. Our involvement, as the Deputy will be aware, was mainly in payments, approvals and various matters.
Deputy J. Higgins: I wish to run through the sequence again briefly. In November 1999, Punchestown management approached the then Department of Agriculture, Food and the Marine with ideas for a national agricultural and eventing exhibition and international show centre. On 19 January 2000, Department officials recommended to the Minister that Punchestown management should receive a grant for this purpose. The following day, the grant was approved by the Minister for Agriculture, Food and Marine, who issued a request to the Minister for Finance for 100% funding, to which he agreed on 27 January 2000. Clearly, the approval process moved at a lightning pace. Was a proper evaluation of the need and business case for the centre carried out and, if so, of what did it consist?
Mr. Malone: The dates the Deputy quotes are correct and not in dispute. The Department had been aware for a number of years that there was a gap in the infrastructure, much of which arose from the changed role of the RDS. The Deputy will be familiar with the spring show formerly held at the RDS and the venue’s inability to accommodate large-scale agricultural events because of various developments on the site, traffic and other reasons. As a result, our view for some time was that there was a gap in the infrastructure. We received the request from Punchestown on 16 November, which we evaluated and considered in the Department, judging it against a number of criteria, including the suitability of Punchestown, whether alternative sites could be used and the likely events which would take place. I have mentioned on a number of occasions the importance to the country of what is known as three-day eventing. We also have in-house knowledge of agricultural shows and exhibitions, breed societies and so forth. We formulated a view that the project was worthy of support. As I stated, we could have made the choice that it was not worthy of support. As to the question of giving a percentage grant, which I am aware the Deputy has not raised, the reality was that funding had to be either 100% or nothing. To answer the Deputy’s question, the project was considered and reviewed in the Department. We followed the normal procedure in making a submission to the Minister and receiving ministerial approval. The next step was a submission to the Minister for Finance. That would be the normal-----
Deputy J. Higgins: How many personnel were involved in the evaluation? Is there a paper trail for the evaluation?
Mr. Malone: There is definitely a paper trail. Those involved in the evaluation are personnel in the Department who have responsibility in this area. Two or three people would generally be involved on an issue such as this and I also feature in the paper trail. There are clear lines of communication leading to a decision on the matter and normal procedures were followed.
Deputy J. Higgins: What did those undertaking the evaluation do? Did they study all the possible events which could be held in a two or three year period, the amount of income the centre could generate as opposed to its costs and so forth? Was all this done?
Mr. Malone: We first asked ourselves whether there was a need for the centre and formed the view that there was. We then asked what kind of events the centre would accommodate and considered this issue. We also asked whether it would help the agriculture industry and concluded that it would from the point of view of our standing internationally. I emphasise the importance of three-day eventing because it has the potential to bring a significant amount of money into the country. For example, the European championships, which were held in Punchestown last September, probably brought a sum of the order of €10 million into the country when all aspects are added up. Where we are open to criticism, and we acknowledged this at our previous meeting, is on the question of whether a business plan was prepared, to which I indicated at that meeting that we did not receive a business plan from Punchestown. I understand the reason was that the project was seen as part of the overall infrastructure of the country. This was not just a question of providing a normal grant for a project for which one runs a scheme in which one has a choice of between five or six different projects. We examined the proposal in the context of infrastructure and asked whether we needed to fill the gap. We concluded that we did.
Deputy J. Higgins: Mr. Malone’s response is very general. I could take any need in society, in health or another area, and argue that a certain facility was required on the basis that it would be used. That is hardly an adequate and accountable reason for giving taxpayers’ funds to Punchestown. The Accounting Officer of the Department of Finance told the Comptroller and Auditor General that it was the responsibility of the Department of Agriculture and Food to formulate, evaluate and deliver on projects such as Punchestown and to ensure that proper procedures were in place to do this in a transparent, responsible and accountable manner. That was not done in this case, was it?
Mr. Malone: I think it was. There was openness and transparency on the project. All the procedures were followed. There were a number of tenders and the point has been acknowledged that there was no-----
Deputy J. Higgins: We are talking about the pretender stage.
Mr. Malone: To return to that point, the Deputy stated that it is not adequate, either for the State or for the taxpayer, to say that there is a need for a facility, to look at it in generality and to take a positive decision. I would argue that situations like that arise from time to time. They have arisen in the past and will arise again. We have to take a decision. One cannot judge this against the normal criteria of a grant for a factory or a food processing plant. This was something entirely different and we had to judge it. We had to take the broad view. We had to take a view as to whether this decision would be vindicated into the future. I think this decision will be.
Deputy J. Higgins: On 6 April 2002, Punchestown informed the Department of Agriculture and Food of changes to the project that would cost a great deal more money and, on 2 June, Punchestown submitted revised proposals costing €12.8 million. Three weeks later, on 23 June, the Minister for Agriculture and Food wrote to the Minister for Finance requesting additional funding of €6.4 million and, on 7 July, the Minister for Finance agreed. In August, the Department of Agriculture and Food approved the grant totalling €13.3 million and we have sight of that letter putting a cap of €13.3 million on the amount that would be given. Did the fact that Punchestown applied for what was essentially a new project or a huge extension of costs cause Mr. Malone concern?
Mr. Malone: Initially, we were surprised.
Deputy J. Higgins: Is it a vindication of my previous point, that no serious work went into the approval of phase one?
Mr. Malone: No, with respect I do not think it is. What was put to us in the second approach was that they had a different project. They had looked at facilities in other member states and, I think, in the United States.
Deputy J. Higgins: Should that have been done before the first proposal?
Mr. Malone: Maybe it should but, with the benefit of deeper analysis and when they got into the process, they decided that they could put forward a bigger and better project which gave more functionality and which, for instance, allowed the centre to hold a bigger and wider range of events. That entailed changes to the construction involving the single span construction - the committee has seen the building - and that pushed up the cost. That was our choice: either to go with that proposal or to go back to the original proposal. The view we formed was that, if the funding could be provided, the second proposal was better. Facilities in other countries tend to be owned by local authorities. Rarely are these facilities privately owned.
Deputy J. Higgins: What was the involvement of the Minister for Agriculture and Food in the approval or seeking of approval for the second proposal?
Mr. Malone: There was a letter from the Minister, to which Deputy Joe Higgins has referred, on 23 June seeking the approval of the Minister for Finance for the additional funding. Again, the normal processes and procedures were followed.
Deputy J. Higgins: The Department received the proposal on 2 June and, within three weeks, the Minister for Agriculture and Food was writing to the Minister for Finance seeking the additional funding. What happened in that short time span of three weeks?
Mr. Malone: The approach to the Department from Punchestown about the second project took place in April. Therefore, we had knowledge of it prior to the formal submission of the letter on 2 June that Punchestown was considering a more elaborate project. It is not fair to say that we got a letter on 2 June, forwarded it on 23 June, and that was the only consideration of the second proposal. It had been going on for a period of weeks and months.
Deputy J. Higgins: When was it decided to go with the second proposal?
Mr. Malone: It was decided internally when we got knowledge in April to evaluate or consider the second proposal. It was decided then to make a submission to the Minister to get either ministerial approval or rejection of the proposal. The Minister agreed to the second proposal and forwarded it to the Minister for Finance.
Deputy J. Higgins: Is it true that the Minister and the Department had agreed before Punchestown ever made the formal submission on 2 June?
Mr. Malone: No, because we could not do that.
Deputy J. Higgins: When did the Department do it then? Can Mr. Malone give a date?
Mr. Malone: First, we get ministerial agreement and follow the normal procedure. We process the application and go through the different aspects of it. That took place. That does not mean that we decide on a particular minute on a particular day that we are approving that. We put it through the normal procedure. The critical aspects would be the acceptance by the Minister on 23 June, which I would argue strongly is the normal process, and a submission to and approval from the Minister for Finance. If we did not get those two approvals, our views-----
Deputy J. Higgins: If Mr. Malone says that he was seriously going through all the procedures and consulting his Minister, and he received this formal submission on 2 June, why were the members told at a meeting of the Kildare Hunt Club four days later that the development of the centre would be 100% funded by the Government and that the money would be drawn down in two tranches?
Mr. Malone: I cannot answer for the Kildare Hunt Club. I have no hand, act or part in the club. I have never seen those minutes.
Deputy J. Higgins: The minutes are here.
Mr. Malone: I am not contradicting the Deputy.
Deputy J. Higgins: They are from a body that has serious agreements with the State and a serious allocation of taxpayers’ funding for its benefit. They say that, at a meeting four days later, the money was in place and the deal was done.
Chairman: Those minutes have not been circulated to witnesses. They have only been circulated to members.
Deputy J. Higgins: That is what the minutes state and I want an explanation.
Mr. Malone: Regardless of what the minutes state, I cannot be asked to explain what the Kildare Hunt Club stated. What I can say is that it was always understood that there would be a 100% grant. That was clear from the beginning, whether for the first or second project. The normal procedure would be that one would draw down grants in two tranches. That tends to be the way grants are drawn down. I would not read anything-----
Deputy J. Higgins: I would. It is treatment of taxpayers with the utmost contempt that, at a private meeting of a blood sports organisation, the disposition of taxpayers was set out before, according to Mr. Malone, the decision was even made. Is it not the case that the real evaluation of this was obviously made in conversations between the Ministers, Deputies McCreevy and Walsh, and their buddies in the horse racing world?
Mr. Malone: No, I do not accept that. The second point is that there was a letter. Punchestown already had approval for the first project. I repeat the point that it was clear that there would be 100% funding, and we would have told them, probably at an early stage, of the payment in two tranches. That is the way payments are normally made.
Deputy J. Higgins: The date line given in the minutes conflicts with the alleged procedure gone through. Regarding paragraph 13 of the letter of August 2000 in which the Department put a cap of €13.3 million on the amount that would be given to the Punchestown development, why was that cap subsequently broken and how?
Mr. Malone: The reason for it is fairly straightforward. The approval for the development was obviously subject to planning approval from Kildare County Council and, in granting planning permission, it attached two conditions: first, additional car parking requirements and, second, a sewage treatment plant. These two conditions were not anticipated because there were considerable car parking facilities in Punchestown in any event and we did not envisage the sewage treatment requirement.
Deputy J. Higgins: This would seem to contradict the earlier point Mr. Malone made here and in his document that the expertise of the Department had been brought fully to bear on an evaluation of the project and the plans. How did Mr. Malone miss that?
Mr. Malone: No, I do not think so. These things happen all the time, where approval is given for a particular project and then planning permission comes subsequently. Additional planning conditions are not unusual. We had a clear choice of funding or not funding the additional requirement. It broke the cap. There is no argument or question about that. I am not disputing that point. The reality, however, is that if we had not funded it, Punchestown did not have the wherewithal to fund it.
Deputy J. Higgins: What was the interaction between the Department of Finance and the Department of Agriculture and Food on the breaking of the cap?
Mr. Malone: We made a submission to the Department of Finance and got formal approval from it. A letter was sent on 23 January 2002 to the Minister for Finance and he granted the necessary approval.
Deputy J. Higgins: Was there an evaluation of the perilous state of the finances and management of Punchestown when the Department of Agriculture and Food recommended these grants?
Mr. Malone: The situation in Punchestown emerged in 2002. This sequence of events started in 1999. I do not think anybody was aware of it nor was it an issue in either 1999, 2000 or for a long period in 2001.
Deputy J. Higgins: Were the accounts of Punchestown seriously examined before approval was given for the grants?
Mr. Malone: We had the accounts of Punchestown. The difficult situation came to light because there was a more detailed evaluation of the financial situation in the centre. I am speaking from memory and maybe I am open to correction, but some time in 2002-----
Deputy J. Higgins: There were ructions inside the Kildare Hunt Club in 2001 because of the state of the organisation’s finances.
Mr. Malone: No, Mr. Kavanagh has explained the difficulties. Had the Punchestown festival taken place as normal in 2001, the situation would be different. It did not take place, they lost 90% of their income flow which caused a financial problem for them and brought certain issues to light. These were not issues in 1999 or 2000. With the benefit of hindsight certain matters become evident, but-----
Deputy J. Higgins: Is it not the case that the running of the affairs of Punchestown and its finances was not seriously examined?
Mr. Malone: It was not an issue. There were no questions. Punchestown has been around for-----
Deputy J. Higgins: In committing €13 million in funding, should the Department not at least have ascertained that it was not to be committed to an organisation that could have gone down the plughole?
Mr. Malone: Yes, that is a fair comment but the books in 1999 and 2000 indicated that this was an organisation which was not about to go down the plughole.
Deputy J. Higgins: On the trading companies now running Punchestown, the agreement is that, if all loans are repaid by 2016, ownership will revert to the Kildare Hunt Club. Am I correct?
Mr. Kavanagh: That is correct.
Deputy J. Higgins: Does that include the event and exhibition centre?
Mr. Kavanagh: That is correct.
Deputy J. Higgins: Where does that leave the €15 million in taxpayers’ funding?
Mr. Kavanagh: I suppose it leaves it no different from when it was invested. The total acreage at Punchestown is 466 acres. We have identified approximately 250 acres of that land as being necessary to run the racecourse, associated car parks, lands, etc., and the event centre. That land will be put into the company, Punchestown Holdings Limited. The rest of the land will remain with the Kildare Hunt Club. If all its liabilities are settled by 2016, ownership of that 250 acres will revert to the Kildare Hunt Club in the same fashion as the remaining land which still remains owned by it in the interim period.
Deputy J. Higgins: Is there no provision for a repayment to the taxpayer of the grants?
Mr. Kavanagh: Does the Deputy mean in the case of the events centre?
Deputy J. Higgins: Yes.
Mr. Kavanagh: No, there is not.
Deputy J. Higgins: If that happens in 2016, would Mr. Kavanagh agree that this private entity of Punchestown and the Kildare Hunt Club will be in possession of a massively valuable asset?
Mr. Kavanagh: It would depend on the view one takes. Is the Deputy talking about the land or the centre?
Deputy J. Higgins: I am talking about the asset that would be there in 2016.
Mr. Kavanagh: Does the Deputy mean the land?
Deputy J. Higgins: I mean the land and the event centre that has been facilitated by taxpayers’ funds.
Mr. Kavanagh: The land has been in the ownership of Punchestown or the Kildare Hunt Club since the start of the last century. It was left in trust for it by the La Touche family for the development of equestrian activities and horse racing in particular, and that has remained the way for 100 years. Due to this new development arising from the financial crisis that was caused in 2001 by the loss of the festival, in 2016 this new company set up either will own the 250 acres which incorporates the racecourse and the events centre, or will trade its way out of its current difficulties and the racecourse and the events centre will revert to their pre-2001 situation.
Deputy J. Higgins: Irrespective of the profitability of events which might take place, is there no provision for taxpayers to recoup any of the €15 million of their funds so generously provided for the event centre?
Mr. Kavanagh: There is no such provision. As I said, it would revert to the situation which applied before 2001 when Punchestown lost its festival and ran into financial difficulties. Our involvement is to allow it the time and space to trade its way out of its difficulties.
Deputy J. Higgins: Would Mr. Kavanagh agree that it is an extraordinary gift from the taxpayer to a private entity?
Mr. Kavanagh: That is not for me to say.
Deputy J. Higgins: Has the centre been in operation for a full year?
Mr. Kavanagh: I am open to correction but I believe the first event was held in May of last year.
Deputy J. Higgins: A point arose as to the adequacy of the centre for major international equestrian events in terms of whether its longitude and latitude would satisfy international criteria. Can Mr. Kavanagh say anything on that?
Mr. Kavanagh: I am not expert on equestrian events. As Mr. Malone mentioned earlier, there is a significant difference between horse racing and equestrian events. All I know is that the figures which have been quoted for equestrian events are for an Olympic-size event. I believe there is a capacity to stage showjumping. If that were desired in the event centre, it would mean restricted spectator numbers. The event centre was used as part of the European three-day event championships which were held there in September. The showjumping was held outdoors.
Deputy J. Higgins: Could the design and the area of the event centre cater for an international event under the rules of international equestrian events?
Mr. Kavanagh: I am not expert on it. I understand that the event centre is larger in dimension than the Odyssey Arena in Belfast where showjumping was held, but I stress it is not my area of expertise.
Chairman: On Deputy Joe Higgins’s point, it was clarified that it was not suitable for international competitions.
Mr. Malone: Perhaps I could help on this issue. We never envisaged grant assisting this facility for showjumping because there are already adequate facilities for showjumping in the RDS and various other places around the country. One could hold a major showjumping event there if one wanted to but that was never the consideration.
Chairman: The point about it not being suitable was clarified at a meeting of the committee. From the safety point of view, the crowd would have to be restricted too much.
Mr. Malone: Major international showjumping competitions have been held in small arenas. That is all I am saying, no more or less.
Chairman: It is important to clarify this point because it has been well-established. The Irish Show Association has clearly put on the record that the venue was not suitable for an international jumping competition.
Mr. Malone: It was never a consideration. That is the point I am anxious to elaborate for the committee.
Chairman: There is no point giving an impression that it could be used for showjumping. It was not designed for it.
Mr. Malone: No, it was not and it was never a consideration.
Chairman: I just wanted to clarify that point.
Deputy J. Higgins: Is it not extraordinary that the Department is providing all this investment for various reasons and did not consider that the opportunity or need might arise for it to be used and, for the sake of a few metres more, did not change the design?
Mr. Malone: No, it is not extraordinary. In fairness, there is the RDS and Millstreet. There is another showjumping facility in Kildare itself. In our mind, it was clear that we did not really see this facility as designed for showjumping competitions. I do not want to get bogged down in the technical details. We were more interested in three-day eventing which has different requirements. That is the only point I am anxious to make.
Deputy J. Higgins: A figure I have seen shows that about one third of the activities would be related to agriculture. Would that be true?
Mr. Malone: It is hard to judge on the first year, but it would be about one third to a half. It will vary from one year to the next.
Deputy J. Higgins: Is that satisfactory?
Mr. Malone: The short answer is "Yes".
Deputy J. Higgins: Santa’s Kingdom is there for 70 days according to one report.
Mr. Malone: I do not know how many days it will be there, but allied to that is an event called Agri Aware which is held by an organisation which attempts to bridge the urban-rural divide.
Deputy J. Higgins: Does Mr. Malone know if the management of Santa’s Kingdom invited the Ministers, Deputies Walsh and McCreevy, to do a stint playing Santa at Punchestown this Christmas? Mr. Malone would agree that they would not need to be auditioned having such expertise in delivering free gifts to Punchestown already.
Mr. Malone: The important aspect from our point of view is that this facility is available for agriculture related events that are important to the sector and internationally. I mentioned the European eventing championships that were held there last September. They could not have been held without this facility. There are other such competitions. There are also show societies. The Farm Machinery and Tractor Association used the facilities. If the facility is used for other purposes and it does not prevent the facilities being made available for the purposes for which it was grant assisted, then we have no great problem with that. The other point relates back to an earlier question which the Deputy put to Mr. Kavanagh. Punchestown has taken on a considerable liability with this facility. It has an event centre worth €14 million but it will have to manage and run it. That brings a considerable amount of responsibility and cost. The view we have formed is that this facility will work roughly on a break even basis and nothing has emerged to disprove this. We looked at it in that context. We made a choice. It is important that it is looked on in that context.
Deputy J. Higgins: There was a suggestion that the major music promotions company, MCD, struck a deal in late 2001, advanced money to Punchestown which was in trouble, and received a favourable deal into the future on the rent for future events. Can Mr. Malone cast any light on that?
Mr. Malone: Yes, we have checked that out. That has nothing to do with the event centre. A music company has done a deal with Punchestown but it relates to the race track. It has nothing to do with the event centre. As far as I understand it, the event centre is not suitable for musical events because of acoustics and other reasons. The agreement, as far as I understand it, specifically excludes the event centre.
Deputy J. Higgins: There was threatened or actual litigation within the Kildare Hunt Club involving High Court injunctions, one of which, if I understood correctly, prevented a meeting of the club taking place in February 2002. At a meeting of the club it was said that Horse Racing Ireland would meet the costs of that litigation. Can Mr. Kavanagh throw any light on that?
Mr. Kavanagh: No. Horse Racing Ireland is not meeting any costs of the litigation in Punchestown. An action was taken in February 2002, as I understand it, to prevent a meeting of the hunt taking place until certain financial information was available. At that point the situation at Punchestown was getting serious and we started to get involved. As I stated earlier, our rescue package was put to the annual general meeting of the hunt in November 2002, but HRI has provided no funding for that legal action.
Deputy J. Higgins: Will Mr. Kavanagh clarify that? He attended the meeting on 4 November 2002.
Mr. Kavanagh: Yes.
Deputy J. Higgins: A member of the club, referring to the litigation, asked who would bear the costs of it and Mr. Kavanagh allegedly replied that Horse Racing Ireland would bear the costs.
Mr. Kavanagh: I have not seen the record to which the Deputy is referring but I can confirm that Horse Racing Ireland has not paid the costs. As I understand it, the costs have been borne through the trading companies in Punchestown. I am not totally familiar with the case but I think there was an issue in Punchestown that, if people were-----
Chairman: Deputy Joe Higgins should not put those minutes on the record.
Deputy J. Higgins: I am elucidating and seeking clarification.
Chairman: The witnesses have not seen the minutes.
Deputy J. Higgins: They do not have to see the minutes. I am asking for clarification.
Mr. Kavanagh: There was a debate at the time. An action was taken against certain members of the hunt in their capacity as directors of the companies and they got a legal view that, on the basis that the action concerned was taken, the companies would pay the legal fees, but not Horse Racing Ireland. Without seeing those minutes, I cannot clarify it for the Deputy.
Deputy J. Higgins: Mr. Kavanagh did not say that Horse Racing Ireland would bear the litigation costs of internal matters to the Kildare Hunt Club.
Mr. Kavanagh: No. I can confirm that we have not done that.
Deputy J. Higgins: What potential or actual benefit, financially or economically, is Punchestown to the Kildare Hunt Club?
Mr. Kavanagh: To the members of the hunt club?
Deputy J. Higgins: Or to the hunt club as an entity.
Mr. Kavanagh: In its current status, it is of no benefit in that it is held in a trust which was agreed in 1904 for the development of equestrian sports and horse racing. There is no individual benefit to any members of the hunt club from that land. It is an extensive tract of land.
Deputy J. Higgins: I do not mean to individual members but to the activities of the Kildare Hunt Club.
Mr. Kavanagh: What benefit is it?
Deputy J. Higgins: Is it possible that in the future, profits from the activities at Punchestown will accrue to the benefit of the Kildare Hunt Club?
Mr. Kavanagh: No. My understanding of the trust is that, if profits are generated, they will be reinvested in the facilities in Punchestown.
Deputy J. Higgins: So, for example, there would be no question of the assistance taxpayers have given being used to support or subsidise blood hunting.
Mr. Kavanagh: Not that I am aware of.
Chairman: Is there any restriction on the sale of the grounds in the trust in future?
Mr. Kavanagh: I understand there is a restriction. There are 466 acres plus 12 acres of development land which were purchased subsequently by Punchestown in the early 1990s. Obviously, that can be developed and sold for development land. There are restrictions on the land put into the trust in 1904 in terms of whether it can be sold. It is all zoned agricultural land.
Deputy Connaughton: I welcome Mr. Kavanagh and wish his industry well. It is important that Horse Racing Ireland does well. I have no intention of going over all the ground covered. I was one of those who visited Punchestown at its invitation. There are a number of technical matters about which I want to talk to Mr. Kavanagh and Mr. Malone that arose from that visit. By any standards, it is an impressive building and it will enhance Punchestown. Like Deputy Joe Higgins, I went to the trouble of reading the minutes of Kildare Hunt Club, which I will not quote publicly. I was struck by the fact that the organisation appeared to have considerable internal problems, especially at the time the Government decided to provide grant aid to the tune of approximately €14 million. If ever there was a vehicle which was unable to take that type of business on board, it was the Kildare Hunt Club. If one looks at the minutes which it put at our disposal, one will see that it had some hairy meetings. This committee is responsible for ensuring value for money and its remit is to ensure moneys made available by the Exchequer are provided in a transparent way and that we protect the taxpayer. For all our sakes, I hope this project works and I have no reason to believe it will not. However, there are considerable question marks over it. We were told at Punchestown that all the officers of the Kildare Hunt Club were replaced last year. Is that correct?
Mr. Kavanagh: When the Deputy says "officers"-----
Deputy Connaughton: I mean the officers and the manager. It appears the slate was wiped clean.
Mr. Kavanagh: There was a change of management.
Deputy Connaughton: Did many of the officers of the club resign?
Mr. Kavanagh: There were changes in personnel.
Deputy Connaughton: Were there huge changes in personnel?
Mr. Kavanagh: I would not say huge changes. I do not disagree with what the Deputy said in that Punchestown set itself as a racecourse, leaving aside the event centre, an ambitious plan when the Irish Horseracing Authority initiated its capital development scheme in 1995. Some members may remember Punchestown before it was developed. It was a relatively small racecourse with a festival which was popular in Kildare but not a major international event. It set itself a strategy to develop Punchestown into a world class racing facility and racecourse which, as I said earlier, could compete with the Cheltenhams of this world and offer a tangible follow-on from Cheltenham to generate the return match feeling of the Irish horses taking on the English horses. It achieved that and its festival in 2000 was spectacularly successful in that respect. There were 85 runners from the UK bringing with them significant numbers of racegoers and tourists. Everything was fine. However, in summer 2000, it did a major mole drainage job on the course which did not work. Horses fell at the first meeting which took place in autumn 2000. Horses put their feet in holes and it was deemed to be unsafe. Winter, which is the main time for Punchestown races, proceeded with no racing. There was still a hope that racing could take place at its festival meeting in April, which accounts for 90% of its revenue. I worked in the Turf Club at that time and was responsible for calling off the festival because our inspector of courses felt the track was not safe and was not prepared to sanction it for racing. That precipitated the crisis to which the Deputy referred. The fact that Punchestown had grown so quickly and was so dependent on one meeting, which it lost, precipitated the type of internal strife to which the Deputy referred. That is the situation Horse Racing Ireland has been trying to address.
Deputy Connaughton: I will come to that. Superimposed on that structure was this huge investment of €14 million.
Mr. Kavanagh: It was not superimposed. It commenced before that. The Deputy has read the minutes. That strife arose particularly from the loss of the festival in April-May 2001. Throughout the rest of 2001-----
Deputy Connaughton: Is it fair to say all that strife took place while the investment was being made and the centre being built?
Mr. Kavanagh: No, I would not say that.
Deputy Connaughton: Did Mr. Malone not say it was finished in 2002?
Mr. Kavanagh: He did. However, from observing it closely, everything was fine internally in Punchestown as the racecourse developed. When it lost its festival meeting, that pulled the rug completely from under it and precipitated a problem.
Deputy Connaughton: While I have no problem with the complex and believe it will work eventually, is Mr. Kavanagh aware that there is a genuine suspicion among the public that the €14 million was another aid to Punchestown to help it overcome whatever difficulties existed? For example, are the stables more advantageous to Punchestown racecourse than to the exhibition complex?
Mr. Kavanagh: They are advantageous to both, about which there is no doubt. There are a lot of synergies or complementaries between the two. It works both ways.
Deputy Connaughton: Are they used on occasions when the complex is being used for agricultural shows? I was told they had not yet been used. Is that correct?
Mr. Kavanagh: I would be surprised by that.
Deputy Connaughton: I stand corrected on that.
Mr. Kavanagh: Any shows held in the event centre involving livestock, in particular the European equestrian three day events, used the stables. A charge is being levied on the racing company in Punchestown by the event centre company there when the stables are used on race days. I mentioned earlier that there are synergies. There are synergies in reverse as well in that I am aware that at farm trade machinery show held earlier in the year, the conference suites in Punchestown racecourse were used and complemented the activity going on in the event centre. There are definitely synergies.
Deputy Connaughton: From that point of view, and given his involvement with Punchestown, can Mr. Kavanagh elaborate on the €15 million or so Exchequer funding? How has that benefited the racecourse financially? How much of that money went to the racecourse or did any of it go to it?
Mr. Kavanagh: Very little. Looking at the Comptroller and Auditor General’s list of costs, landscaping work or work on driveways is necessary for the event centre and is shared. There is undoubtedly a benefit there. I explained to the Deputy the situation regarding the stable yard. In my experience, and from a purely racing perspective, the fact it is taking up much of the time of the racecourse management is the main issue.
Deputy Connaughton: To go back to the agreement, I took it from Mr. Kavanagh’s opening statement that, at the end of 2016, Punchestown racecourse will give Horse Racing Ireland €4.1 million.
Mr. Kavanagh: That is correct. It will be able to repay all its loans.
Deputy Connaughton: It will get back its deeds.
Mr. Kavanagh: That is correct.
Deputy Connaughton: Will that happen if, for instance, half or three quarters of the money is repaid? What is in the agreement to protect Horse Racing Ireland? Does all the money have to be paid back?
Mr. Kavanagh: If it is not all repaid, ownership will transfer to Horse Racing Ireland.
Deputy Connaughton: Is that specifically stated?
Mr. Kavanagh: Yes.
Deputy Connaughton: Unless that €4.1 million is paid up on that date-----
Mr. Kavanagh: Yes. I imagine that if some of the money had to be repaid and a balance was outstanding as the deadline approached, it would be up to the owners of Punchestown to raise money to clear the outstanding debt, either through fund-raising or from its own resources. The agreement is black and white. If the money is repaid, the situation reverts to the way it was before we became involved. If the money is not repaid, we will take over the running of the racecourse.
Deputy Connaughton: I refer to the passports for sale, the Getty family and where that matter stands at present. When I spoke about the Kildare Hunt Club, it appeared to me that a substantial number, or at least some, members of that club were not aware of whether it had to be repaid. In fact, it is contained in the minutes that some members of that club believed that, if the passports for sale matter did not go through as envisaged, the Kildare Hunt Club would have to pay back the money. Can Mr. Kavanagh throw any light on that? Given the amount of money involved, everybody in the club should have known where it stood.
Mr. Kavanagh: It is black and white. In the agreement we put before the members at the meeting last November, to which Deputy Joe Higgins referred, there is a clear commitment to repay the funding.
Deputy Connaughton: How much was that funding?
Mr. Kavanagh: It was £3 million. The club has negotiated repayment of €2.1 million in settlement.
Deputy Connaughton: It stood at £3 million.
Mr. Kavanagh: Yes.
Deputy Connaughton: That was the initial amount.
Mr. Kavanagh: Yes. It was some €3.8 million.
Deputy Connaughton: To go back to the evaluation of this project about which we have spoken and which received a considerable airing on the previous day, another matter with which a significant number of people have problems is the speed with which all this was done. Many people and small communities who hope to build an extension, such as an additional room to a local school, or community centre must have plans, hire architects and so on in the preceding 12 months to two years, yet this project was wrapped up in a few months. This may be an unfair question to Mr. Kavanagh and, if it is, perhaps Mr. Malone will respond to it. Given the apparent problems in Punchestown at the time, did it find itself in an unusual business arrangement?
Mr. Kavanagh: Punchestown is most unusual in that no other hunt or other type of club in the country would probably own an asset of that size or scale, that is, 466 acres of land. That is an unusual situation. It was one in which we, as the racing authority, had to get involved. I ask Mr. Malone to take the question on the event centre.
Deputy Connaughton: Before Mr. Malone responds, I have another question for Mr. Kavanagh. In so far as the title and the area of ground is concerned, when I visited Punchestown I mistakenly believed the entire property had gone into this mix. However, I now understand it is 466 acres. Is that correct?
Mr. Kavanagh: The entire property is 466 acres plus 21 acres of development land which was purchased in the early 1990s.
Deputy Connaughton: Did Mr. Kavanagh not say there were 250 acres?
Mr. Kavanagh: The essence of our proposal was that we did not have any real interest in land which is not used for racing or for the event centre. We have identified the lands which comprise the racecourse, the area in the centre of the racecourse where banks races are staged at the festival meeting, the car parks, the stands, the enclosures, the event centre and associated lands. That comprises 250 acres of the 466 acres. That is the racecourse. The rest of the land is extra and is used for pony trials, pony camp and those types of activities the club carries on.
Deputy Connaughton: To go back to the speed with which this happened, my understanding on the previous day was that this project was not initiated at executive level in the Department of Agriculture and Food but by the Minister. Is that true?
Mr. Malone: It is not true in the sense that we got a proposal from Punchestown. The letter was quoted on the previous day and it referred to the fact Punchestown had had a meeting with the Minister.
Deputy Connaughton: With two Ministers.
Mr. Malone: With one Minister.
Deputy Connaughton: Was a letter received from the Minister for Finance on the subject to the effect that he supported-----
Mr. Malone: No.
Deputy Connaughton: Was there a letter from the Minister for Agriculture and Food to the Minister for Finance?
Mr. Malone: The Minister for Agriculture and Food got a letter from Punchestown acquainting him of the proposal, referring to a meeting it had with the Minister for Finance and basically submitting the proposal to the Department. That was the letter dated 16 November. I think Mr. Purcell quoted from the letter on the previous day. That letter arrived in the Department on 16 November. I am clear that the proposal came from Punchestown and that the genesis of the proposal-----
Deputy Connaughton: That would have been after Punchestown spoke to the Minister for Finance.
Mr. Malone: As I understand, Punchestown had a meeting with the Minister for Finance in his constituency clinic. I see nothing in the correspondence to that effect but I read subsequently in the newspapers that there was a meeting with the Minister for Finance. We received no correspondence from the Minister for Finance. We analysed the proposal and submitted it to the Minister who subsequently submitted it to the Minister for Finance. A number of points must be made about the dates. This was a once-off proposal and did not require us, as we have been on a number of occasions, to set up a new scheme or a series of measures to support a particular sector, for example, grants for the food industry, with which the Deputy will be familiar. This was a once-off proposal from Punchestown. We knew who they were. We knew where Punchestown was. We knew what in essence they were putting to us.
Deputy Connaughton: Did the Department know at that stage the trouble Punchestown was in?
Mr. Malone: No, we did not know the trouble it was in. This was 1999. It is important to understand that, in essence, Punchestown’s troubles developed after the failure to hold the festival in 2001. Normally the Punchestown festival takes place in the spring.
Deputy Connaughton: As a matter of interest, I am only an occasional racegoer. For a place as large as Punchestown, does it not appear that huge importance was placed on one festival? Even if it had had a good festival that year, would it have still had some trouble?
Mr. Malone: That may well have been the case.
Deputy Connaughton: Considering all the loans, etc., it would not appear that the sun was going to shine too brightly for it even if it had a good festival.
Mr. Malone: No, its troubles began with the festival. There is no argument or question about that. As has been described and as Mr. Kavanagh will confirm, Punchestown holds 18 race days per annum. It is a racetrack and the racing normally takes place during the winter. It has grown in importance and has acquired an international status. As far as we were concerned, there were no problems. I do not think there were problems until 2001 when its balance sheet changed dramatically.
Deputy Connaughton: Is it the case that the money had not been paid to it at that stage?
Mr. Malone: Some money would have been. The project was well under way at that stage.
Deputy Connaughton: A reasonable tranche of money had been paid to it by the Department when things were not going well there.
Mr. Malone: At that stage, they were involved in finishing the event centre. We were not doing either ourselves or anybody else a service by having an event centre half finished or three quarters finished. It was well under way at that stage. At that stage also, by the time we made the last payment, Horse Racing Ireland had taken a hand in the situation.
Deputy Connaughton: Mr. Malone spoke of the evaluation, such as it was, and that it was a once-off project, etc. Many people would find it difficult to understand why it could not have been evaluated against other projects in other countries, but that is the way it happened. The straw that appeared to break the camel’s back was the third application for Exchequer funding which was for the sewerage scheme. Was that for €1.6 million?
Mr. Malone: Yes, it was of that order.
Deputy Connaughton: This is an architectural and engineering matter. Even people trying to build their own home for the first time must be particular about the septic tank. As Mr. Malone will know well, this is a huge cost in house building. Was it not remarkable that someone did not realise that this was likely to happen? Many members of the public would see that obtaining the €1.6 million was straightforward. The deal was done, a telephone call was made and, all of a sudden, they were told they would get the additional funding as well. Does that not seem a little haphazard?
Mr. Malone: No, I do not think it is haphazard. I myself asked the same question. Could this have been anticipated? In the case of the car park, Punchestown would have considerable car parking facilities anyway. They might not have tarmacadam on them but there would be a considerable amount of land and space around the entry to the racecourse where cars could be parked. Kildare County Council took a particular view. As I understand it, there was a discussion between Punchestown and Kildare County Council. On the sewerage facilities, again all this is with the benefit of hindsight. It is an open question as to whether it could have been anticipated.
Deputy Connaughton: It is not.
Mr. Malone: Yes it is. I would have a different view.
Deputy Connaughton: It should have been written into the script from day one.
Mr. Malone: No, that is said with the benefit of hindsight.
Deputy Connaughton: I put it to Mr. Malone that, in any project of any size I have seen, the sewerage system has been an integral part of it.
Mr. Malone: Yes, but one must bear in mind what exists in Punchestown, namely, a facility that is used for a limited number of days. If the sewerage issue was to be a problem, it should always have been a problem and Kildare County Council took a particular view on it. We were left with a choice. The Deputy is correct in his analysis that this was the last piece of the jigsaw and the choice was either to pay or not to pay it. If it was not paid, it was evident at that stage that Punchestown did not have the wherewithal and resources to pay it. If all had gone well in 2001, it would have been a different discussion.
Deputy Connaughton: It is fortunate that someone did not decide to cover the car park or there would have been another bill if this trend had continued. I sincerely hope that the taxpayers’ investment in this pays off. I wish the project well for everyone’s sake because it has the ability to work. However, many questions have been asked about how the evaluation was carried out.
Deputy Noonan: The Comptroller and Auditor General, in his preliminary remarks, indicated that there were five areas on which we needed clarification. The first, the evaluation of the project, has been gone through in great detail, especially by Deputy Higgins. On the evaluation, is it correct that no business plan was produced for the Department of Agriculture and Food by Punchestown, even though it might have had one itself?
Mr. Malone: That is correct.
Deputy Noonan: The Department neither considered nor opted to appoint outside consultants. All evaluation was done internally in the Department.
Mr. Malone: That is correct. We discussed that on the previous occasion.
Deputy Noonan: The position of the Department of Finance was that it was the Department of Agriculture and Food’s job to evaluate and therefore it did not assist or hinder in any way the evaluation.
Mr. Malone: That is fair comment also.
Deputy Noonan: The first proposal was evaluated over the Christmas period between late November 1999 and mid-January, a busy time in the Department and a short period. I am not saying it could not have been done. Would it be correct to say that it was given priority within the Department?
Mr. Malone: That time of the year is busy in the Department and there were many other issues going on, but it is possible to do a proper evaluation in a four or five week period. It fell into a clear area of responsibility.
Deputy Noonan: I do not suggest it was not possible to do it. I am saying it was possible to do it if it was prioritised. Was it given priority to ensure that the result of the evaluation was issued quickly in early January during what was a holiday period and also a busy period as the Department was dealing with the end of its financial year?
Mr. Malone: I never got the sense that I or the Minister ever said to officials that this had to be dealt with and gave them a timeframe within which to deal with it. That did not happen.
Deputy Noonan: Am I correct in assuming that the bottom line was that Mr. Malone regarded it as an essential piece of infrastructure for agri-business in Ireland and that was the controlling factor in the decision?
Mr. Malone: Yes.
Deputy Noonan: Was that still the controlling factor when the price doubled?
Mr. Malone: By and large, yes, except that we had to look at what extra we were getting when the price doubled. We were getting a facility that gave more options and that, in particular, accommodated the farm machinery aspect more efficiently. From that point of view, the Deputy is correct. Our basic position was there was a gap in the infrastructure.
Deputy Noonan: The impression I have from Mr. Malone during this and the previous meeting, and there is nothing wrong with it either, is that the Department was committed to providing this piece of infrastructure and felt that the first proposal, when it was submitted, was an answer to something the Department may have had in mind for a long time. When the second proposal was submitted, the Department thought this was even better, even though it cost more, and there was no real attempt in the second evaluation to match value for money with the original policy position of wanting the facility. Am I wrong in that?
Mr. Malone: When the second proposal came in, we had not been anticipating it. We got the first proposal and felt that was it. As has been indicated, Punchestown came to us in April 2000 indicating that they had looked around a bit more and had a better proposal. We looked at the second proposal. If the cost of any project doubles, then one asks oneself why it is doubling and what extra one is getting. We formed the considered view that the second proposal was a better one. It was then contingent on the money being made available and that required the support of the Minister, for a start, and then the support of the Department and the Minister for Finance.
Deputy Noonan: There appears to be no doubt that it was a better proposal, but was it a better proposal for the money concerned? Did the Department evaluate that?
Mr. Malone: Yes, we did. I think it is a better proposal for the money concerned. What one is getting for the extra €6 million is a project that is probably more than twice as good as the first project.
Deputy Noonan: In terms of the accounting for the project, in what Vote of the Department is it?
Mr. Malone: It is in a particular subhead which we opened, subhead E3. It was a stand-alone subhead.
Deputy Noonan: The project ran from the first submission by Punchestown in November 1999, and Mr. Malone stated that construction commenced in 2000 and was completed in 2002. Is that correct?
Mr. Malone: Roughly speaking, yes. We made payments in 2000, 2001 and 2002 and a small residual payment in 2003.
Deputy Noonan: When did subhead E3 first appear in the Book of Estimates?
Mr. Malone: Subhead E3 appeared in the Revised Book of Estimates in 2000.
Deputy Noonan: Therefore it would not have gone into the pre-budget Book of Estimates.
Mr. Malone: We did not have the approval at that stage.
Deputy Noonan: Yes, so it would have been included in the post-budget Book of Estimates.
Mr. Malone: We would have put it into the revised one.
Deputy Noonan: At that time budgets took place in January or did they still take place in the December?
Mr. Malone: They took place in December, but the project would not have been in the Book of Estimates for 2000 that was published in 1999. It was, however, as I recall, published in the Revised Estimates in 2000 which, as the Deputy will be aware, appear generally around late January or February. It was put into the Book of Estimates at that stage.
Deputy Noonan: What figure was included?
Mr. Malone: I can get the figure for the Deputy.
Deputy Noonan: What is the approximate figure?
Mr. Malone: The figure of £5.5 million was put in at that stage.
Deputy Noonan: Regarding the minutes of the Kildare Hunt Club and the approval given on 3 June, is it the case that no formal approval was given to the first proposal?
Mr. Malone: No, we never wrote to Punchestown but they knew that there was ministerial agreement. The inclusion in the Revised Book of Estimates was a clear indication of formal approval. Clearly one could not include a provision in the Revised Book of Estimates if one did not have the approval of the Minister for Finance.
Deputy Noonan: Was the budget held in December of 1999?
Mr. Malone: The budget was held in December of 1999 but I am talking about the Book of Estimates.
Deputy Noonan: I know. As I understand it, there is the pre-budget Book of Estimates, with which we are all familiar and about which there is all the fuss and debate in the House, and then the Revised Book of Estimates is published after the budget. The reason for this is to reflect changes made in the budget, not new decisions made by Departments. They would be in the original Book of Estimates. Whether it is formal or informal, my point is that the fact that the Department had a new subhead - E3 - in the Revised Book of Estimates in January of 2000 means that approval was given, one way or another, six months previously. The documentary evidence states the approval was given in June or July of 2000.
Mr. Malone: One cannot draw that conclusion. The process is that there is a Budget Statement by the Minister for Finance, there is a Book of Estimates which is normally published in December of the previous year and there is a Revised Book of Estimates which is generally published in late January or early February of the following year. We would feel that opening a specific budget line brought transparency and openness to this. There were other options had we wanted to be less than transparent.
Deputy Noonan: I do not suggest that.
Mr. Malone: On the second point, that a change in the Revised Book of Estimates implies a policy decision taken five or six months previously, that is not the way the system works. The way it works is that the Revised Book of Estimates takes account of adjustments that have been made, and this was an adjustment that was made and we accommodated it in the Revised Book of Estimates. I would argue the contrary. There has been total openness and transparency on this.
Deputy Noonan: We are all familiar with how the systems work, whether we are on the political or official side, and how the Estimate is built up. This is done on the basis of the policy in each Department and the cost of implementing that in the following year. The pre-budget Book of Estimates did not contain subhead E3 because, up to the end of 1999, it was not the policy of the Department of Agriculture and Food to build a convention centre in Punchestown. Therefore it was not in the build-up of the Estimate. In the post-budget Book of Estimates, also known as the Revised Book of Estimates, I understand that the revisions are due to the changes made in the budget which Mr. Malone stated was in December 1999. On this occasion, however, we see a new subhead included in the Revised Book of Estimates in January-February of 2000 on the basis of a decision which was not made until June of the following year. Mr. Malone can correct me if there are precedents, but I have not previously seen a budget line being opened under a new subhead in anticipation of a decision to be taken later in the summer. It is hard enough to obtain money for the policies decided, not to speak of those anticipated.
Mr. Malone: The Revised Book of Estimates obviously takes account of decisions made in the budget but also the culmination of a process that goes on between the Department of Finance and the individual line Departments about expenditure under different headings. The inclusion of the provision in the Revised Book of Estimates published in 2000 is perfectly consistent with the dates. It is acknowledged, and the correspondence exists to show it, that the Minister for Finance gave approval for the first project on 27 January 2000. Certainly from my point of view and from an official point of view, this is perfectly consistent. We had no decision or proposal. The Estimates process normally begins around July, August or September of the previous year. There was nothing from Punchestown at that stage. A proposal came in November, we got a decision in January and we included it in the Revised Book of Estimates. There is nothing more or less to it. Those are the facts of the situation.
Deputy Noonan: When the Department included the figure, it was in excess of £5 million. It was a multi-annual proposal by any standards involving a good deal of construction. The first proposal, which the Minister sanctioned on 27 January, was for a figure of €6.9 million. Would it be appropriate to make a preliminary inclusion under a special subhead of a figure in excess of €5 million against a total cost of €6.9 million? It appears the provision was made against a cost of €12.7 million. It also appears that at the time the Department included the figure in the Book of Estimates, it was making provision against the second rather than the first proposal because it would not be reasonable or sensible to include a figure in excess of €5 million for a total cost of €6.7 million when it would take several years to go through in any case.
Mr. Malone: It depends on how quickly this is done. When one includes a provision, one makes a best guess as to the figure. I do not believe anybody is disputing the facts which are that the second proposal had not been received by us at that stage.
Deputy Noonan: Is Mr. Malone saying it had not been received or had not been formally received?
Mr. Malone: We had not received it. Perhaps I misled the Deputy and I apologise if there was some confusion concerning years. I am categorical on this issue and the Deputy will have to take my word that it had not been received. As it happened, the project was probably slower to get off the ground. If the first proposal had proceeded and the management of Punchestown had not changed their minds, the project would have started and finished sooner.
Deputy Noonan: What is the planning history of the project?
Mr. Malone: All our approval was clearly contingent on planning approval being obtained from Kildare County Council. I understand this was given in late 2000, although I will have to check the dates.
Deputy Noonan: I presume Punchestown had gone to tender subject to planning permission.
Mr. Malone: Yes, there were six tenders.
Deputy Noonan: The money had been provided during the previous January.
Mr. Malone: Yes, in the Revised Estimates.
Deputy Noonan: The second area to which the Comptroller and Auditor General referred-----
Mr. Carey: While I am aware of the saying one should never volunteer to speak, I wish to point out that, with regard to the figures being bandied around, the difference between pounds and euro may be a source of confusion. The original proposal was for £5.5 million, which is roughly €6.9 million. With regard to the technicalities of the proposal, changes in the budget are not the only ones reflected in the Revised Book of Estimates. During my previous appearance before the committee, I pointed out that one of the reasons the then Department of Agriculture, Food and the Marine wrote to us regarding the first payment was that it needed the approval of the Department of Finance to open a new subhead which had not appeared in the abridged version of the Estimates. To summarise the position, the use of pounds and euro could give rise to some confusion and, second, it is unusual but not without precedent for something like this to happen.
Deputy Noonan: The second area to which the Comptroller and Auditor General referred was the issue of whether the building, in general, was being used for its original purpose. What was the original purpose of the proposal?
Mr. Malone: The original purpose was eventing, helping the equestrian industry in the wider sense, and hosting agricultural events, shows and exhibitions, including, for example, farm machinery shows.
Deputy Noonan: Is Mr. Malone referring to European eventing?
Mr. Malone: Yes, the three-day European eventing.
Deputy Noonan: Did that take place outside the convention centre?
Mr. Malone: There are three phases of eventing, namely, dressage, show jumping and long distance riding. In this case, one needs an event centre such as this. There were, for example, roughly 100 competitors, which makes it a huge event. It cost some €2 million to run the event held in Punchestown last September. One needs a large centre for the competitors, checking and everything else that goes with such an event.
Deputy Noonan: The last time we discussed this issue, I misunderstood the position. I understood that part of the purpose of the project was to hold equestrian events inside the centre. I was surprised to learn subsequently that this had never been the intention and equally surprised by Mr. Kavanagh’s earlier comment that show jumping could be held in the event centre. On our visit to Punchestown, we were told categorically by its management team that it had never been the intention to have a horse in the building, neither when the proposal was made nor subsequently. We were told specifically that Kill, ten minutes up the motorway from Punchestown, has a fine centre for hosting show jumping or indoor equestrian events which Punchestown would use if such facilities were required. Was it the Department’s understanding that horses would not be in the centre?
Mr. Malone: I would not be quite so categorical as to state that horses would never be in the centre. What was clear, and I clarified this earlier, was that the question of show jumping was not really a consideration as far as we were concerned because we already have adequate facilities in the country, including as the Deputy pointed out, one such facility not far from Punchestown. When one gets involved in the eventing arrangement, however, one needs a wider range of facilities. Clearly, for example, one needs a fairly big track, but a range of other facilities are required, for instance, for dressage. I understand the show jumping part of the event was held in an arena beside the event centre. When one has 100 competitors, one also needs a centre.
Deputy Noonan: I am not arguing against the centre but trying to clear up a misunderstanding which I presume was shared by other people. I understood that when the case was made that Ireland would not be able to hold the European eventing championships without having a convention centre, the reason was that the convention centre would be used for some of the competitions. It now transpires that this was not the case as the centre was never intended to be used for competitions and that all the eventing in the European championships took place outside.
Mr. Malone: Without wishing to get into arguments on dimensions and similar issues, one could use the centre for show jumping if one wanted.
Deputy Noonan: While that may be the case, there was no business plan. Mr. Malone has already stated that the Department did not take show jumping into account in its evaluation of the proposal for the centre. I presume it could take place in the facility but this was not the purpose of the centre. Was it evaluated on that basis?
Mr. Malone: No, because we consider that show jumping is adequately catered for.
Deputy Noonan: This is also what the people in Punchestown told us when we were down there, namely, that any such events they wanted to have would take place in Kill. This brings me to the third area raised by the Comptroller and Auditor General.
Chairman: I ask the Deputy to give way to Deputy Batt O’Keeffe.
Deputy Noonan: May I make a final point?
Chairman: We are under time pressure.
Deputy Noonan: The Comptroller and Auditor General placed considerable emphasis on this issue and I have important questions to ask about it. I will yield to Deputy Batt O’Keeffe when I have asked a few more questions, provided I can contribute again later.
Chairman: That is fine.
Deputy Noonan: On my visit to Punchestown I found it difficult to understand that there had never been any intention to have a horse in the building. I accept Mr. Malone’s point that, if somebody decided to use the facility for show jumping, this could be done. The European eventing trials which took place at the facility are used as the primary justification for the project. In other words, we are told that Ireland could not have hosted the event without the convention centre. This is a generally accepted point, which we have also accepted. However, many people thought events were taking place inside the centre, which is not the case. On the next area examined by the Comptroller and Auditor General, if it was never intended to have horses inside the building, why was €2 million spent on stables as part of necessary infrastructure? I cannot reconcile this with the manner in which the Department evaluated the project.
Mr. Malone: One cannot hold eventing without stables. Punchestown had stables but they were old. There are many health and safety issues relating to them given that people must look after the horses. Eventing could not take place without adequate stable facilities. Many questions would have been raised if the facility had been built without stables. Many questions have been raised about not anticipating certain issues but we would be open to criticism for not adequately catering for that requirement.
Deputy Noonan: Is Mr. Malone saying the primary purpose in building the centre was to attract eventing?
Mr. Malone: That was one of the uses. Farm machinery was a problem because there were difficulties at the RDS in terms of traffic. We also have ambitions that a large number of international livestock shows would be held there and large stables would be needed for that. We calculated the track is used for 18 days of racing, therefore, the stables are used for racing for a limited time. They would be used more for events in the centre such as three day eventing.
Deputy Noonan: However, horses do not go into the centre.
Mr. Malone: They do. They might not go into the building but there must be adequate stable facilities.
Mr. Kavanagh: I will clarify that. My understanding is that by definition in three day eventing, showjumping is always held outdoors, as happens, for example, at the Olympic Games, Badminton and so on. However, the event centre was used for horses, not showjumping at Punchestown in September. It was used as a vetting area for both the cross country event which took place on Punchestown lands and, allied to the three day event, there was an endurance event where Arab-bred horses competed in the Wicklow Mountains. Vetting for that and the cross country element of the three day event was vital. That all took place in the event centre. Showjumping is always an outdoor event. Indoor showjumping is for exhibition purposes as opposed to being a major international event. The event centre was used for horses during the European championships as a vetting centre and veterinary area and not for horses to compete.
Deputy Noonan: I am trying to explore two issues to which the Comptroller and Auditor General referred us. Were facilities provided under the heading of a convention centre, the primary purpose of which was to facilitate the racecourse rather than the centre? Was there a crossover in the investment? To what extent was the elaborate entrance gate needed for the convention centre or was it primarily an opportunity to provide a facility the racecourse badly needed? It is a similar scenario with the stables. Everybody is agreed the proposers were pushing an open door and, as a result, did they go beyond what was necessary for a convention centre and add on facilities regarded as necessary for the racecourse?
Mr. Malone: I do not think so. I replied to a similar question to the effect that there is no doubt there are synergies between the two, which confirms the logic of basing the centre at Punchestown as opposed to anywhere else. Many of the add-ons were the result of planning requirements and they were not brought forward by the promoters of the event centre. The stables are fundamental to the running of a three day eventing competition and a race meeting. There may be different requirements for stabling. A race meeting might involve 90 horses while three day eventing might involve significantly more horses and a greater turnover of horses. There are also synergies in reverse, in that Punchestown management - Dick O’Sullivan and this team whom the committee members met when they visited the site - is bringing its expertise in running events and race meetings to bear on the promotion and running of the event centre. There are undoubtedly synergies but, if the event centre was developed on a green field site anywhere away from Punchestown, there is nothing in the list of costs in the Comptroller and Auditor General’s report that would not be included.
Deputy B. O’Keeffe: Will Mr. Malone confirm that while Deputy McCreevy might have met the Kildare Hunt Club, there is no evidence of him contacting the Department of Agriculture and Food, in writing or otherwise, to give priority to this project?
Mr. Malone: That is true.
Deputy B. O’Keeffe: Is there evidence that the Minister of Agriculture and Food asked that the event centre should be prioritised?
Mr. Malone: No.
Deputy B. O’Keeffe: That is important in terms of the public’s view. I refer to the minutes of the Kildare Hunt Club, which are important because it is dangerous if they are taken as accurate summations. Members of the club were of the overwhelming view that the money was not to be repaid. That was inaccurate because they were misinformed. It was also understood from the minutes that the majority of members felt the HRI would repay the money following litigation. Is that categorically denied?
Mr. Kavanagh: Yes.
Deputy B. O’Keeffe: The third issue, the grant payment, was raised. It is likely the reference to it was inaccurate.
Mr. Kavanagh: Which is that?
Deputy B. O’Keeffe: Deputy Higgins asked about a minute that suggested the club was aware of a grant that would be made in two tranches. Mr. Malone indicated that was never agreed.
Mr. Malone: That might relate to legal fees.
Deputy J. Higgins: Mr. Malone did not say that.
Deputy B. O’Keeffe: I want to clarify that.
Deputy J. Higgins: It is in a different category, it is a contemporaneous note of what happened.
Deputy B. O’Keeffe: The Deputy had his opportunity.
Deputy J. Higgins: I will not have questions twisted.
Deputy B. O’Keeffe: With regard to the issue of two phased payments, which was raised at a hunt club meeting, will Mr. Malone clarify that did not arise?
Mr. Malone: Will the Deputy clarify the question?
Deputy B. O’Keeffe: Deputy Higgins said that, at a meeting of the Kildare Hunt Club, it was stated it already had the agreement of the Department of Agriculture and Food to receive the payment in two phases. I understood from Mr. Malone’s reply to the Deputy that this was not the case and it was not agreed prior to----
Mr. Malone: Normally, the payment is made in two phases. The issue that arose was whether the club had received an indication from us before we had the approval of the Minister for Finance for the second project and I rejected that assertion.
Deputy B. O’Keeffe: I was one of the few who visited Punchestown and looked upon the venture as good value for money. I listened to Mr. Kavanagh’s comments on the new agreement. The committee is interested in the protection of the State’s interest. The site comprises 466 acres, 250 of which will be managed by the Kildare Hunt Club and Punchestown management. How is that land zoned? A golf club, for example, is located on land zoned recreational but it is possible to develop land within the overall structure. If part of the 460 acres of land was to be zoned under the new agreement, the Kildare Hunt Club would have a massive pie. If 20 acres of the land was zoned it would amount to in excess of €20 million. We are looking at the State having an investment from HRI and other people. Is there anything in the new agreement which states categorically that in the event of some of the land being zoned for development purposes there will be a clawback to the State?
Mr. Kavanagh: The clause states that there will be a first priority on any funds raised to repay the loans forwarded by Horse Racing Ireland. The land on which the 250 acres is based is all zoned agricultural. Most racecourses are zoned agricultural and local councils will allow the building of necessary stands and buildings on the property to carry out race meetings. However, one must bear in mind that much of the land will be valueless in that it is in the centre of the racecourse at Punchestown, which is of no value to anyone. The vast bulk of the land is worth nothing. Some land within the 250 acres is currently used as car parks and has road frontage. Obviously there would be a value on this if it were rezoned. One of the clauses we have included is that if funds are realised from the sale of lands, the first priority must be to repay the money outstanding to Horse Racing Ireland.
Deputy B. O’Keeffe: Would that clawback pertain to other investments by the State apart from the investment HRI would make?
Mr. Kavanagh: I cannot speak for the events centre money. It would not pertain to the grants given for the development of the racecourse stands. That would be no different from any other racecourse, whether Galway, Limerick or wherever throughout the country. If we give a capital grant to a racecourse to develop its facilities, it is given on a 50:50 matching funding basis on the strict understanding that it only becomes repayable if racing ceases within ten years of the payment of the grant.
Deputy B. O’Keeffe: Is the total land holding zoned agricultural?
Mr. Kavanagh: Yes. The only land that is zoned residential is the 21 acres of development land to which I referred earlier. This was purchased outside of the trust about 15 years ago. They have endeavoured, but failed to achieve planning permission to develop some houses on the land.
Deputy B. O’Keeffe: If 21 acres is zoned residential, one would take it that somewhere along the line one will get planning permission for a significant housing development on the land.
Mr. Kavanagh: That is the hope, even though they have tried and failed once at An Bord Pleanála.
Deputy B. O’Keeffe: In the event of a significant development taking place on the lands, perhaps Mr. Kavanagh will check for a report to see what clawback there might be in respect of other investments by the State in the Punchestown land. Is Mr. Kavanagh saying there will be clawback for HRI?
Mr. Kavanagh: Yes.
Deputy B. O’Keeffe: Will there be a clawback for other State investments?
Mr. Kavanagh: On the event centre?
Deputy B. O’Keeffe: Yes.
Mr. Kavanagh: I do not believe so.
Mr. Purcell: Yes, there is. The letter to the chief executive of 1 August 2000 contains these conditions. Condition No. 15 states that the money will be repayable if the property is sold, leased or its use is altered significantly without the prior written approval of the Department.
Deputy B. O’Keeffe: Does this refer to the centre itself? If the State invests a significant amount of funding in a strategic development, which is badly needed, and if the company sells a large tract of land, it will have total ownership of everything the State puts into it. Is there any protection for the State in terms of a private company having a massive landbank, including the significant funding which will accrue from zoning it development land? Will the State get some benefit from the company for the significant funds it will invest?
Mr. Purcell: This is something which will have to be agreed in the final agreement between Horse Racing Ireland and Punchestown. It has not yet been ratified. Everything has not been done and dusted in this regard. There is an outline agreement but, legally, the €2.5 million loan has not been transferred. Presumably the agreement will not kick in until this happens. I am not privy to the details of the agreement.
Deputy O’Keeffe: It would be ironic if the State made the investment, a private club made significant money out of a portion of the land and the State received no clawback. Effectively, the club would own the whole concourse, including Punchestown racing and the event centre, while the State would have invested significant funds. It would be appropriate that there should be some clawback to the State and that any agreement should take this into account.
Mr. Kavanagh: Clause 12 of the package which was put to the Kildare Hunt Club states that the proceeds of the sale of all non-racecourse or event centre lands remaining with the Kildare Hunt Club will, in the first instance, be used to offset the company’s debts. This is the basis for the statement I made that the loans would be repaid. I do not believe this will apply to the grants we have given them, which are subject to different repayment terms. I cannot speak for the event centre funding.
Deputy B. O’Keeffe: Would it not be ironic if, for instance, the State invested money in a sewerage system on the 20 acres of land zoned for development and it received nothing back?
Mr. Kavanagh: It would, but the land for development is at the far side of the racecourse from the enclosures. This land was acquired ten or 15 years ago.
Deputy B. O’Keeffe: As it now appears likely that the Kildare Hunt Club will be in a position to pay off its debts within the timeframe, what guarantee has the State in regard to the strategic management and the holding of events by the State on this private property?
Mr. Kavanagh: I would not underestimate the repayments issue. It is a challenging funding issue to repay the money. The best guarantee we can give is our involvement. We will be involved as a 50% owner of the property for the next 15 years at the very least. Our specific objective will be to safeguard any investment of the State in the past.
Deputy Boyle: The visit to Punchestown by members of the committee following the last presentation by the Secretary General was very useful in that it put the project into context. As a member of the delegation, I could see the dual use of many of the ancillary facilities in terms of the stables and the entrance enclosure. It is fair to state that the benefit of the ancillary facilities are of equal, if not greater importance to the racecourse than the use of the event centre itself. It was also clear from the visit that there were severe questions about the corporate governance of the management company and the Kildare Hunt at the time the decisions were being made. I am concerned as to why this was not noted at the time. There are questions about professionalism and so on. I do not accept the answers being given today that the problems of Punchestown boil down to bad luck and the events of 2001. There continues to be a very detailed corporate structure involving three companies on the racecourse. This involves the renting of services and the event centre to the main racecourse group and rent going to the main race course group from the events centre and the services company. I cannot understand why a Department and State agency have allowed such a complex situation to develop and have not made any serious effort to disentangle it. May I ask Mr. Malone a question about the time between the first and second proposals? Indications were given that research was undertaken which justified the second proposal being made, that centres were seen in Scotland and Germany and that this research was undertaken by Punchestown, or the Kildare Hunt. It is my impression that this was done informally, that people visited these areas on a personal basis and decided that what they saw was what they would like to see in Punchestown and that this was the basis of the second proposal being made. Between the first and second proposal, why was the Department of Agriculture and Food not engaged in research regarding what was needed, what existed elsewhere and what facilities the Department would like to see in this country?
Mr. Malone: We had the option of going abroad ourselves and looking at centres. Within the Department we had a familiarity with event centres. Some of our people had been abroad for other reasons and had seen places like this. Whether the review by Punchestown was done formally or informally, the fact remains that centres of this kind exist elsewhere. The option of a more elaborate proposition that would cost more money was put to the Department. I am not sure if we would have added much value by visiting centres like this ourselves. Even with the benefit of hindsight, I am not sure if that would have added to what we know.
Deputy Boyle: Is it fair to say that this research was done informally by the promoters?
Mr. Malone: I am unclear as to the difference between formal and informal. If one is at an event and one sees a facility and how it is designed-----
Deputy Boyle: It seems to be of a piece that no business plan was submitted, even for the first proposal, never mind the second proposal and that the formulation of ideas and the making of the proposal was done on an informal and ad hoc basis that would not be acceptable in any other decision making procedure.
Mr. Malone: The business plan is a different issue. It relates to the volume of business and the number of events in the future. The design of the centre was the first consideration. That was done with the benefit of architects, engineers and various other experts on design. One can look at facilities abroad but at some point an architect has to sit down and formulate a design that is best suited to what the facility is required for, the use to which it would be put, the site and the location.
Deputy Boyle: Would it be fair to say that the Department of Agriculture and Food became involved because the event centre was seen to have a possible use for agricultural shows and exhibitions as well as the equestrian element? Ordinarily, the capital development of a race course would have to go through Horse Racing Ireland, an organisation with a limited capital budget. Did the possibility of access to Exchequer funding make it more likely that money for this type of capital development would be more easily obtained through the Department of Agriculture and Food?
Mr. Malone: No, I do not think that is a fair way of looking at it. Punchestown, as Mr. Kavanagh has already explained, had got assistance for the capital development of the race course. I accept that there were issues of shared facilities, stables, access and that kind of thing. Punchestown has a facility but those involved have taken on a liability and responsibility. They have the centre and they must make it work and manage it. One could say they got the facility at zero cost but they must run it on a day-to-day basis. The argument that this was a convenient way of getting their hands on State funds does not stand up.
Mr. Kavanagh: We would not grant-aid that type of project, which is ancillary to the racing activity there. We have had instances where a number of race courses have engaged in non-racing activities. Our own race course, Leopardstown, has a golf centre which we would not grant-aid. If the question is, did the application go to the Department of Agriculture and Food instead of going to Horse Racing Ireland, or IHA as it was at the time, it would not fall within our remit to grant-aid that type of development.
Deputy Boyle: I have questions for Mr. Kavanagh but I have one final question for Mr. Malone. Was the change of management and of the officer board of the Kildare Hunt in recent years and the effect of that on the project and on the future management of the project viewed with any concern in the Department?
Mr. Malone: Yes, we had an interest, more than an interest, in the events which unfolded at Punchestown from late 2001 onwards. Clearly, we had an interest in the situation stabilising itself and that there should be clear structures and good management, going forward. Yes, is the short answer to the Deputy’s question.
Deputy Boyle: Horse Racing Ireland is both an owner and a regulator of race courses, which is a conflicting situation. Its predecessor organisation, the Irish Horseracing Authority, had already given considerable grant-aid to Punchestown to allow the development of the stand and corporate facilities and the catering and services facilities. How much money was given to Punchestown?
Mr. Kavanagh: The figure quoted earlier by the Comptroller and Auditor General was a grant of IR£6.4 million, or €8.2 million, and a loan of IR£1.3 million, or €1.65 million, which kicked in when the festival in 2001 was lost. That would have been consistent with the type of funding provided for equivalent race courses during their development process in the late 1990s.
Deputy Boyle: There are outstanding loans in the region of €4.1 million.
Chairman: That point was dealt with extensively at the start of the meeting, Deputy.
Deputy Boyle: A sum of €6 million has been given in grant-aid. An additional €15 million has been provided for a new events centre and the outstanding loans are only €4 million. The State has already given a considerable amount of money to this company and race course, yet it is being asked to get involved in a bail-out operation over 15 years. These assets will continue, if the centre is successful, and remain in the ownership of the Kildare Hunt.
Mr. Kavanagh: The package we have offered allows them time to trade their way out of their problem and repay any loans. The issue of whether or not money is invested by ourselves, as grant-aid or as loans, for the development of race course infrastructure is, to some extent, a different debate. Punchestown got the same treatment as all race courses were entitled to, which was a 50% grant towards their development. I said earlier that Punchestown had set out a very ambitious development plan to move from where it was in 1995 as a small locally-based festival meeting to an international race meeting. That was something I would imagine the Irish Horseracing Authority would have supported and encouraged at that time.
Deputy Boyle: Is the agreement with the Kildare Hunt about the arrangements for the future company still being finalised?
Mr. Kavanagh: It is. It has been approved and was endorsed by the members of the Kildare Hunt at a meeting held about three weeks ago. The holding company has been established, it is running the race course under a management services agreement and directors have been appointed to it - five from the club and five from ourselves. We have said we are not prepared to inject funding into the joint venture company until the modification of the leases to reflect the revised split of the land is addressed and until Revenue clearance is received for the structures going forward. As Mr. Malone said earlier, there is no difficulty with Punchestown. The company has operated as a partnership for the past year. I have been one of its directors. It has brought about a change in atmosphere in the place in terms of the way the racecourse has been run.
Deputy Boyle: One was appointed as manager by Horse Racing Ireland.
Mr. Kavanagh: Yes.
Deputy Boyle: Through a management services agreement.
Mr. Kavanagh: Yes.
Deputy Boyle: Why does Horse Racing Ireland run Navan golf course?
Mr. Kavanagh: It is a subsidiary of Navan Racecourse, which we own. One of the issues which racecourses have faced is that they have a significant investment of facilities which are used only on a limited number of days during the year. We would encourage racecourses to develop non race-day business, and Navan developed quite a successful golf course, commencing in 1997. It is funded separately and by members of the golf club. A number of racecourses such as Killarney, Leopardstown, Gowran Park, operate golfcourses to try to get the businesses going on days other than the days on which they are racing.
Deputy Boyle: That is the direct opposite to what Mr. Kavanagh told me a few minutes ago in regard to not funding ancillary facilities of the type at the events centre.
Mr. Kavanagh: I made the point that Navan golf course is self-financed. It is funded by borrowings it has undertaken and by the membership subscription fees.
Deputy Boyle: Even if that centre’s proposal was made to Horse Racing Ireland on the basis that it was self-financing, Mr. Kavanagh would not get involved with such an arrangement.
Mr. Kavanagh: We would certainly encourage racecourses to do it, particularly something like the events centre, where there might be synergies, but we would not provide capital grant aid for the development of the centre. If there was a project that stood on its own two feet commercially, we would expect the racecourse to have funding plans in place for such a proposal.
Deputy Boyle: So there may have been a mechanism where a facility of this type could have been developed without any State money.
Mr. Kavanagh: I do not think so. Given the profits it is generating and the profitability of this centre, I do not believe it would have been. I said earlier that in the three years it has existed it has made an average profit of €20,000 per year, with €60,000 this year being the highest. If there was a commercial case for putting it there, perhaps we would have had more applicants than we had.
Deputy Boyle: Had a commercial case been made for it? That is another argument.
Deputy Noonan: Many of the questions I had in mind have been asked. What is the rent policy on the convention centre? Has Mr. Kavanagh established an economic daily rent or does he vary it from client to client?
Mr. Kavanagh: I do not understand the question regarding the rent of the centre. Is it the rent from the development company to the race course?
Deputy Noonan: No. When somebody seeks the use of the centre, what is the rental policy of the management?
Mr. Kavanagh: I do not know the detail but each event is negotiated on a commercial basis. I understand that the principal used is that any non-agricultural based events should be charged out on a fully commercial basis whereas there may be some case for operating agricultural-type events at a break even rate. I do not get involved in the detailed negotiations but leave that to Dick O’Sullivan.
Deputy Noonan: Have some events been accommodated there at no cost?
Mr. Kavanagh: I do not know the answer to that.
Deputy Noonan: A considerable amount of the time of the racecourse management is taken up with running the events centre as distinct from the racecourse.
Mr. Kavanagh: Yes.
Deputy Noonan: Is that reflected in the €7,000 profit? Has a cost been attributed to the time of the management?
Mr. Kavanagh: I do not think there is a charge. There is a charge for the use of the stables and the entrance building on race days. I am informed there is a management charge of €30,000.
Deputy Noonan: Is that per annum?
Mr. Kavanagh: Yes.
Deputy Noonan: Does that cover the significant amount of time the management is required for the convention centre? Everybody is interested in the convention centre breaking even. Have the figures been strained to show a profit because the management committee that runs it is paid through the racecourse activity?
Mr. Kavanagh: I do not know. The charge is reasonable based on the time spent. Time is allocated to the events centre by Dick O’Sullivan and his accountant. I would not say the charge is unreasonable.
Deputy Noonan: Mr. Kavanagh described the asset base of the company. Most of the assets have no sale value because they are all tied into the trust, with the exception of the 20 acres.
Mr. Kavanagh: Yes.
Deputy Noonan: The 20 acres are a very valuable asset.
Mr. Kavanagh: They would be valuable if planning permission was obtained.
Deputy Noonan: Can I take it from something Mr. Kavanagh said that planning permission was obtained from Kildare County Council but refused by An Bord Pleanála?
Mr. Kavanagh: I understand that to be the case. It lost on appeal to An Bord Pleanála with objections from local residents.
Deputy Noonan: On the face of it, if it got permission, even for a small portion of it, they would have no problem in clearing their debts.
Mr. Kavanagh: No. There is also a debt to the AIB of €1.1 million which would have to be taken into account.
Deputy Noonan: Are there other debts that we do not know of that are outside the remit of our discussions?
Mr. Kavanagh: No. I understand they are the main debts.
Deputy Noonan: Their total debtedness is €5 million.
Mr. Kavanagh: Yes, plus the GT Equinus figures.
Deputy Noonan: To have 20 acres of land zoned residential, even with a refusal on it, is an extremely valuable asset. What Deputy O’Keeffe has said is important. It appears as if over a 16 year period it would be able to realise part of this. Those involved look well covered and as a consequence the State is beginning to look exposed.
Mr. Kavanagh: As I have said, we have made it a condition of the package that any funds raised from land sales are given priority in terms of clearing any of their liabilities.
Deputy Noonan: That is correct. Once cleared then------
Mr. Kavanagh: The grants which they have got from Horse Racing Ireland, or the IHA in its time, only become liabilities if racing ceased. We would not expect any racecourse around the country to repay grants. That would be a consistent policy which is applied across all 25 tracks in the State.
Deputy Noonan: Does Mr. Kavanagh envisage Horse Racing Ireland being involved on a 50:50 basis after 2016 if the debts are redeemed?
Mr. Kavanagh: That would depend on the view of the Kildare Hunt Club. Given its importance to racing, I would certainly think it is a racecourse in which we will take a very keen interest, whether as a 50:50 partnership or to provide some guidance. It is not for me to say but I think Punchestown has benefited from the HRI involvement in the past year. Whether the Kildare Hunt Club wants that to continue is a matter for the club.
Deputy Noonan: We all hope it is very successful. I hope Mr. Kavanagh’s involvement in it is successful also. I have a final question for Mr. Malone. He said the European Trial Events was one of the primary reasons sanction was given. Does he expect those events to be held in Punchestown regularly?
Mr. Malone: It comes around every few years.
Mr. Kavanagh: I understand, although I am not an expert in the area, an Olympic Games qualifier of that nature may be held in Punchestown. There is proposal coming forward from Avril Doyle, MEP, and Equestrian Ireland to stage an Olympic Games qualifier which would be an equivalent event, although not the European Championships, which would be of equivalent importance.
Deputy Noonan: What events have taken place there that could not have been accommodated elsewhere?
Mr. Malone: The equestrian events could not have been accommodated elsewhere. It would have been difficult to find an alternative site for the farm machinery exhibition.
Deputy Noonan: But they are few enough.
Mr. Malone: The European eventing is a major event. It brings a great deal of revenue and many competitors into the country. It depends on how one does one’s calculations but certainly it brings millions of euro into the country in tourism revenue.
Deputy Noonan: My final question is to Mr. Kavanagh. On the day of our visit many of the stables looked as if they had never been used. I spoke to someone at the venue who told me that a race meeting had taken place some weeks previously at which the race horse owners accommodated their horses, had their own trucks and never used the stables.
Mr. Kavanagh: That would be most unusual for a race meeting. As I understand it, there are 150 stables. Punchestown would have staged quite a high quality race meeting after the Deputy’s visit a few weeks ago at which there may have been only 80 runners. There would be smaller fields in some of the better quality races. Therefore, all the stables may not be needed. There would be a requirement on race courses to clean and disinfect stables to a high degree between race meetings. There are more stables there than are needed for most race meetings.
Deputy Noonan: I thank Mr. Kavanagh for that.
Deputy Rabbitte: I understand Mr. Malone has important business to which to attend.
Chairman: He is under a time constraint.
Deputy Rabbitte: In that event I will defer what I intended to ask him to another day. Mr. Kavanagh might be kind enough to furnish the committee with some background information on the 25,000 people employed in the industry. I refer to his letter in The Irish Times yesterday. That figure has begun to be used, which is in conflict with what is stated on his website. He might let us have information to support it.
Mr. Kavanagh: I can provide the Deputy with a detailed breakdown if he wishes. We stated in our strategic plan that there are 11,000 full-time jobs in the industry, but when full-time jobs in associated industries and part-time jobs linked to the industry are taken into account, 25,000 people earn a living from racing. I can provide the committee with a detailed breakdown of how the figure is made up. On the busiest days, such as during the Galway Races, up to 300 casual staff would be employed by the tote. The firms which provide catering at race meetings would also employ casual staff.
Deputy Rabbitte: However, those people would not earn their living from racing.
Mr. Kavanagh: On the basis that they would work at a race meeting, the money they would earn on a day would be dependent on racing taking place.
Deputy Rabbitte: That day.
Mr. Kavanagh: Yes.
Deputy Rabbitte: What about the other 364 days of the year?
Mr. Kavanagh: In respect of the tote, a number of casual staff would travel to a number of race meetings.
Deputy Rabbitte: Mr. Kavanagh is including those people in the figure of 25,000.
Mr. Kavanagh: We stated clearly that the number of full-time jobs is 11,000. The number of full-time jobs in associated industries-----
Deputy Rabbitte: Mr. Kavanagh stated in his letter to that newspaper that "... it generates sustainable jobs (c.25,000)".
Mr. Kavanagh: Yes.
Chairman: Many of those would be part-time.
Mr. Kavanagh: Yes. The same catering staff work for a number of the different catering companies at race meetings. If one goes to Leopardstown there might be only one catering firm but one would see-----
Deputy Rabbitte: Has Mr. Kavanagh made any attempt to translate such staff into full-time equivalents? One cannot say that people who work a day on the tote or who serve tables for a day, or even a number of days, are employees of the industry.
Mr. Kavanagh: We said they earn a living from racing. That is the expression that was used.
Deputy Rabbitte: I am quoting from what Mr. Kavanagh wrote in that letter to the newspaper and the figure he gave has begun to be used widely. I put it to him that it is misleading.
Mr. Kavanagh: I do not believe it is. There are 11,000 full-time jobs.
Deputy Rabbitte: That is not what the letter states.
Mr. Kavanagh: No.
Deputy Rabbitte: It is not what some of the propaganda states. It is not what was indicated in a statement Mr. Kavanagh issued from a board meeting a few Sundays ago. Is that not right?
Mr. Kavanagh: No, the point is that there are 11,000 full-time jobs. There is an infrastructure of industries based around horseracing and horse breeding, such as those engaged in breeding stock, the feed and tack companies and a number of the veterinary companies, If account is taken of the number of part-time jobs or casual work associated with race meetings, it amounts to 25,000 people engaged in the industry. If the industry disappeared, there would be no need for those workers----
Deputy Rabbitte: Nobody wants the industry to disappear, we all want it to grow and prosper. All I am putting to Mr. Kavanagh is that the innuendo that 25,000 people are employed full-time in the industry cannot be substantiated.
Mr. Kavanagh: I do not believe it has been implied that there are 25,000 people employed full-time in the industry.
Deputy Rabbitte: Mr. Kavanagh stated in his letter to the newspaper in question that the industry generates 25,000 sustainable jobs. I do not know too much about this area, but the reference to 25,000 sustainable jobs implies there are 25,000 people employed in the industry.
Mr. Kavanagh: I can provide the committee with a breakdown of how that figure is made up. There are 11,000 full-time jobs in the industry, which are verifiable. There are 14,000 jobs between full-time jobs in the supply sector to the industry and part-time jobs associated with it. The people in those jobs depend on the industry for their living.
Deputy Rabbitte: I would be glad to get that information from Mr. Kavanagh. He is the author of the letter from which I have quoted. I am not quoting my own figures. In the matter of the disputed VAT of €750,000, when did Mr. Kavanagh first know there was an outstanding VAT liability?
Mr Kavanagh: In relation to Punchestown?
Deputy Rabbitte: Yes.
Mr. Kavanagh: I am not sure. I said earlier that I was not comfortable talking about the detail of this case. I am not certain there is a VAT liability. That is something we have asked the Kildare Hunt Club to establish with the Revenue Commissioners.
Deputy Rabbitte: I thought Mr. Kavanagh was quoted in the Irish Farmers’ Journal as saying he had known about it for some time.
Mr. Kavanagh: No. I have known, as has Horse Racing Ireland, that there have been difficulties with the leasehold structure in Punchestown and with the taxation situation. We have made it a condition of any money we are putting in that these be addressed, but the level of taxation liability, if any, is a matter for the Revenue Commissioners.
Deputy Rabbitte: Mr. Kavanagh does not know as of today whether there is an outstanding VAT liability.
Mr. Kavanagh: All I know is that we have stated to Punchestown, in correspondence going back to August or September this year, that prior to putting in any funding we would requests it to get Revenue clearance for the structures going forward. Beyond that I cannot say what liability, if any, exists.
Deputy Rabbitte: Does Mr. Kavanagh know if there is a liability?
Mr. Kavanagh: I do not.
Mr. Rabbitte: Does he believe there is a liability?
Mr. Kavanagh: I am not expert enough to say that.
Deputy Rabbitte: Has he been told there is a liability?
Mr. Kavanagh: All I can say is that we have asked the owners of Punchestown to clarify going forward the taxation position relating to the structures in place with the Revenue Commissioners.
Deputy Rabbitte: I thank Mr. Kavanagh for that.
Chairman: Can Mr. Malone stay for another few minutes?
Mr. Malone: I have to catch a plane soon.
Chairman: Does Mr. Purcell wish to comment?
Mr. Purcell: Before we conclude-----
Deputy J. Higgins: Is the meeting concluding?
Mr. Purcell: I have one or two brief questions for Mr. Kavanagh.
Chairman: If you wish we can continue even though Mr. Malone has to leave.
Mr. Purcell: I will confine myself to Mr. Malone’s bailiwick. I wish to deal with a few points that might not have come to light during this discussion, which may help the committee in its deliberations. A good deal of play was made about the necessity for the event centre in the context of the three day eventing competition. As Mr. Malone said, I have no doubt that with advances in health, hygiene and safety requirements the event centre may be an essential ingredient to hosting an international three day eventing competition. I noted from the headed note paper of Punchestown that it held a three day international event in 1999, apparently quite successfully. I say that for what it is worth. There may well be advances in requirements for health and safety and so on. To return to Deputy Boyle’s point about the benefit to the race course of the event centre and the ancillary works, clearly there are synergies, as Mr. Kavanagh said. I recall looking at some of the documents in Punchestown in which the event centre was referred to as phase four of the development plan, which suggests the promoters of this project in Punchestown certainly recognise such synergies, to put it at its mildest. With regard to what Deputy Noonan said about the use of the premises, I take on board that Mr. Kavanagh said a large event may be held there in June and, hopefully, it will be, as we all want the event centre to be a success. A previous document outlining the schedule of events for 2004 for Punchestown was made available to the committee. We are talking about the event centre being used for the purposes for which the money was given. That is certainly the case in respect of the Irish Farm and Machinery Show on 14 January 2004. Perhaps the Nelton Angling and Country Sport Exhibition to be held on 19 to 22 February would also qualify. I am less certain about the Nelton Cycling Exhibition. The ECOFIN meeting could be held elsewhere. The House and Garden Exhibition likewise. The eventing championships from 4 to 7 June is possible. The Irish Commercial Truck Show and Tractor Pulling Competition from 26 to 27 June comes within what was envisaged initially when the centre was proposed. I do not know about the National Rally Masters Competition on 3 and 4 July while Witness 2004 and the Corry New Homes Building Show could be held elsewhere. In common with everybody here I hope the event centre is a success. It may well be that since the production of the document, bookings have increased significantly. Its hard to reach a conclusion, on the basis of the schedule of events before us at this stage, that it will form a vital part of the infrastructure for the agri-equestrian area. Perhaps the centre’s event calendar will fill up. I hope it does. I also hope that it will continue to be successful in the future. Rather than go over old ground, I thought that my comments could help the committee reach conclusions.
Mr. Malone: In my initial presentation I made the point that the centre must be viewed over a period. As has been said, it is an investment in infrastructure and its value cannot be seen in the first two years. I am satisfied that the investment will be justified over time. It is early days yet.
Chairman: Mr. Purcell made a point about phase 4. It was indicated that there was a development plan, referred to as phase 4. It is extraordinary that no phases were seen when Punchestown clearly indicated that there were phases of development. Was there a plan?
Mr. Malone: No. Today is the first time I heard a reference to phase 4.
Chairman: When I visited the centre a presentation was made covering four different phases and emphasis was placed on the development of phase 4. Mr. Purcell and Deputy Noonan mentioned that the centre was developed to provide a three day eventing centre. I keep horses myself so I know a bit about them and the need for such a centre. A successful eventing competition took place in 1999 prior to the opening of the centre.
Mr. Malone: Yes, Chairman, and you can argue that point, but life moves on and people expect better facilities. A sector that does not invest in facilities does not survive very long. The same argument could be made for racing or another sport. Events held between three and ten years ago had less than adequate facilities or they were not as good as what is available today. The reality is that we must compete. The racing industry, in general, has recognised that it must compete with other sports and other interests and that if it does not invest in facilities it will not secure events.
Chairman: I am pro enterprise and investment but its justification can be based on a false premise. How much money will be invested in the ECOFIN conference and used for alterations?
Mr. Malone: I cannot answer that question. I would imagine that interpretation facilities are needed. The centre could move its facilities inside. Other Irish convention centres have done it. My organisation is holding its informal agricultural council in Killarney. A certain amount of costs are involved.
Deputy Boyle: Last week Deputy Eamon Ryan tabled a parliamentary question in the Dáil on the subject. The Department of Finance disclosed that the ECOFIN event will cost €0.75 million for the two days and €60,000 will be paid in rent for the Punchestown Centre. We do not know how much of the remaining money will be allocated to it.
Chairman: With regard to the infrastructure requirements that a centre must have, how much equipment will be lost when changing facilities for events? The centre is an open shell building and must be fitted out. There will be a lot of wastage when it is dismantled.
Mr. Malone: A lot of the equipment is rented. It is also mobile and can be used at a variety of locations. We experience the same problems ourselves.
Chairman: The Secretary General at the Department of Agriculture and Food and his delegation are excused. I thank them for their participation and wish them a happy Christmas. We will now ask the Horse Racing Ireland delegation a few questions.
Deputy J. Higgins: I want to ask Mr. Kavanagh some questions. There are 11,000 full-time jobs and an indeterminate number of part-time jobs in the industry. The sector has many low paid workers who do not have many rights and are quite vulnerable. Does Horse Racing Ireland carry a remit for the rights of workers in the industry?
Mr. Kavanagh: The HRI’s board consists of 14 members, two of whom represent persons employed in the industry. One person represents persons directly employed in the industry, particularly stable staff. Another person represents the Irish Congress of Trade Unions. The issue of workers’ rights is of some concern to the HRI board and it will be discussed at a board meeting tomorrow. We have made representations to the employer and employee groups within the industry for their consideration. For example, we recommended that they join a joint labour committee at the Labour Court and the Labour Relations Commission to establish detailed terms and conditions of employment for the industry in the same way as the hotel sector, the bar trade and some other sectors that have a similar profile. The HRI is concerned about the issue.
Deputy J. Higgins: Has the HRI provided guidelines? Has a proper wage for the industry been established?
Mr. Kavanagh: We try to facilitate the process. For example, trainers and stable staff were, in the past, incorporated under the basic agricultural joint labour committee at the Labour Court. There is a case being argued, with some validity, that the horse racing sector involves more than just ordinary agricultural labourers. In particular, there is skill involved in handling horses and riding them and there should be a premium for that. As I said, we facilitate discussions between employer and employee groups.
Deputy J. Higgins: Is the HRI proactive on behalf of low paid workers in the industry?
Mr. Kavanagh: Yes. In recent times we have employed a personnel or human resources manager and one of his specific responsibilities has been to move the issue forward. Frank Timmins has been working with Dan Kirwan, who is the stable staff representative, and with the Trainers Association. He proposed a range of issues that relate to health and safety at the workplace, adequate protection for workers riding horses and the adequacy of helmets and back protectors. It is an area in which we have become proactive.
Deputy J. Higgins: Do you also carry a remit for safety? There have been some horrific tragedies concerning workers in the industry.
Mr. Kavanagh: Yes, it has been a difficult year in that respect. The remit for safety falls under one of our associated bodies, the Turf Club, which is responsible for the integrity of the sport and ensuring that racing is run safely and within the rules. As the Deputy has correctly pointed out, there have been two tragic accidents on racecourses this year. That area is being looked at.
Deputy J. Higgins: The perception of many ordinary people is that a huge amount of tax has been foregone through the exemption for the stud farm industry. Earlier, I jokingly referred to the Minister for Finance, Deputy McCreevy, and the Minister for Agriculture and Food, Deputy Walsh, as being cast in the lead roles at Santa’s kingdom at Punchestown. Is it not true to say, however, that the taxpayer is cast in the role of the unfortunate Rudolf, carrying a heavy burden for the industry, which does not primarily benefit the stablehands? The industry benefits a small elite to an inordinate extent, even if it constitutes a motley crew of tax exiles, tax-free stud farm millionaires and football club owners. A rigorous analysis is required of the benefit to taxpayers from the funds they provide to the industry and whether they should be re-structured. Is the tax exemption for stud farm millionaires not long past its date in terms of propriety?
Mr. Kavanagh: I understand the points the Deputy is making but the stallion tax exemption is a matter over which I have no control. All I can do is point to its benefits. It would be wrong, however, simply to regard horseracing as the plaything of a small number of people. It is a significant industry from which Ireland does very well. Everyone in our industry can be proud of the fact that we are the third largest producer of thoroughbreds in the world. Irish racing has gone through a period of growth in recent times, including attendance, betting, sponsorship, owners, horses and training. It generates important economic activity in rural areas, which helps to sustain health, education and welfare. One study showed that the Galway racing festival alone puts €60 million back into the local economy. That is almost equivalent to the level of funding given to both industries. I would welcome an analysis of the economic impact of the industry and the effect it has on the economy. Prize money for races is an emotive issue and a competitive one internationally. Race horses can be placed in a number of countries for training purposes. We try to aim our racing at the top end of the market in order to encourage the best horses in the world to be trained here. One in nine horses that are returned in training every year wins a race. The other eight cost the same to keep as the winner and they generate the same level of employment and economic activity. A significant element of prize money comes from the owners and from sponsorship. If one takes the top ten races in this country - the group one races on the flat, which are the high profile races, such as the Derby and the Champion Stakes - 90% of the total €5 million prize fund comes from sponsorship and the owners themselves. That fact has not been placed in the public arena. Horseracing Ireland contributes €500,000 to the fund. Our policy is to try to distribute prize money around the country to all 25 race courses. The top races are adequately funded through owners’ entry fees and sponsorship contributions. Under the rules, 25% of all prize money goes not to the owners but to trainers, riders and stable staff who look after the horses. It forms a significant part of their annual income. It is not a hobby for them, it is their livelihood. Generally, owners recover 30% of their total running costs in racing because one horse in nine wins a race. I understand the perception to which the Deputy referred, but I prefer to concentrate on what horse racing - I cannot speak for greyhound racing - puts back into the economy through the economic activity it generates and the employment it provides. In addition, it is a sport and an industry in which we can genuinely claim to be the best in the world. No European trainer has ever won the Melbourne Cup, other than Dermot Weld, who has done so twice. That achievement is a source of great pride. I could cite a number of other such instances involving the industry. I would welcome an economic examination of the effectiveness of investment in the industry. I think it would surprise some people.
Chairman: We are under great time pressure because we have to vacate this room by 2.30 p.m.
Deputy Noonan: A few years ago, someone told me that about one third of all tickets for admission to race courses were complimentary. Has that situation improved?
Mr. Kavanagh: It would not be one third. I managed the Curragh racecourse for some time and about 20% of the admissions were what could be termed complimentary. However, the complimentary category includes sponsors. If someone sponsors a race they get the naming rights to it, as well as having access to a number of entry tickets. So, while the person may not be paying at the gate to get in, the racecourse and racing generally is generating revenue from the deal. Owners and trainers are entitled to free admission on the day they have horses running. In the case of trainers, it is their workplace. The figure would be closer to approximately 20%.
Deputy Noonan: One in five?
Mr. Kavanagh: Yes, but most of that would be recovered through sponsorship or an annual badge mechanism.
Deputy Noonan: What is your estimate of the prize money you will be putting up for 2004?
Mr. Kavanagh: Our contribution towards the prize money will be about €26 million.
Deputy Noonan: Does that amount to about half the total prize money?
Mr. Kavanagh: It would be, yes.
Deputy Noonan: According to your accounts, you disposed of something for over €300,000. What was that?
Mr. Kavanagh: One of the subsidiary companies, Leopardstown racecourse, used to have a tradition whereby the head groundsman was required to live close by in the event of emergencies. With the passage of time, however, that was deemed not to be necessary. The racecourse used to have a house in Cabinteely for that purpose. When the previous groundsman moved on and was replaced, the new groundsman did not take up residence in the house, so Leopardstown had it rented out. We took a decision to sell it by public tender.
Deputy Noonan: What is the update on the ground conditions at Limerick racecourse?
Mr. Kavanagh: It has improved a great deal. Our experience with new racecourses, such as Limerick and Cork, is that it takes a number of years for the track to settle. When one moves that amount of land to create a new racecourse, it takes time to settle. Limerick opened about three years ago and it was felt that the track was very fast and possibly did not suit all horses. Some horses were breaking down on it but with time it has improved. A great deal of work has been done on the racecourse. I cannot remember the last time Limerick lost a race meeting due to bad weather. It is looking forward to a big meeting in about three weeks’ time. It is getting better but it will take time to perfect.
Deputy Noonan: Do you expect the racecourse will fulfil its full fixture list in 2004?
Mr. Kavanagh: Yes. We have had a good run with the weather everywhere. Limerick has not lost a meeting yet this year and I hope it will not lose any of its Christmas festival meetings.
Chairman: Why is there no all-weather track in the country? Is there any possibility of that happening in light of the fact that there are two or three such tracks in the United Kingdom?
Mr. Kavanagh: The only proposal we have had for the development of an all-weather track is from Dundalk racecourse and that is under consideration. As I said earlier, we have a very expanded horse population and we have a problem providing enough racing opportunities for them. The most demand is for horses that jump hurdles. Its a difficult balancing act. One of the proposed solutions is the development of an all weather track. The HRI board has said that it will not proceed with its development until there is one deemed safe for jumping hurdles. This type of racing is of a low quality. Reference was made to tracks in England. Wolverhampton, in particular, achieves an average attendance of about 1,500 people and that is relatively small when compared to the attendances that we achieve.
Chairman: The age profile of people attending meetings run by the greyhound racing industry is quite old. Does the HRI have any plans to promote the horse racing industry at its smaller courses around the country?
Mr. Kavanagh: Yes, that is part and parcel of our television campaign and we are about to launch another one. It is linked to the improvement in facilities. We have found that the larger race meetings are attract bigger numbers and a broader profile of people who attend. Previously people had time to go racing mid-week, particularly in rural areas, but that is no longer the case. Those meetings need some help and we will do that through an advertising campaign.
Chairman: I am delighted about the HRI’s commitment to health and safety given the recent tragic deaths in the industry. Safety on race tracks is of paramount importance.
Mr. Kavanagh: A scheme was put in place before the tragedies happened.
Chairman: Will the HRI conduct a safety awareness campaign, including notices at race tracks?
Mr. Kavanagh: Yes, the term "health and safety" covers a multitude. My organisation has close contact with local environmental health officers when dealing with race courses and their development.
Chairman: That is good to hear.
Deputy Boyle: I have one question that I should have asked earlier. While it refers to Punchestown it relates more to the general competence of Horse Racing Ireland. I have been led to believe that the agreement it entered into with the Kildare Hunt Club includes one clause about the removal of the kennels for the hounds used for fox hunting and other blood sports that are at present located in the main compound of the racecourse. Is that the case?
Mr. Kavanagh: It is more a legal issue. We have no issue or interest in the kennels. They are built in an area that is part of the land deemed to be a car park for the racecourse. It is part of the land to be extracted from the 466 acres and left with the Kildare Hunt Club.
Deputy Boyle: Was it a conscious decision by HRI on the basis that it does not want anything to do with blood sports or fox hunting?
Mr. Kavanagh: No, it is not that.
Deputy Boyle: I take it that the opposite is the case.
Mr. Kavanagh: The issue has never been debated by the board so it has no view on it.
Chairman: I wish to dispose of Chapter 9.1 and the Vote. The Committee intends to do a follow-up report. Is that agreed? Agreed. Are the HRI’s accounts for 2003 agreed to? Agreed. The committee will not sit next week. On 15 January 2004 we will deal with the Department of Health and Children - value for money report on the waiting list initiative and the Eastern Regional and Health Authority. I wish everyone a very happy Christmas and a prosperous new year. I thank Mr. Kavanagh and his team for a very worthwhile meeting. I compliment him on the accounts because they were furnished in a very detailed manner. The overall debate was very good.
The witnesses withdrew.
The committee adjourned at 2.25 p.m. until 11 a.m. on Thursday, 15 January 2004.
-Letter of 21st November, 2003 from the Department of Agriculture & Food enclosing:
-Letter of 7th January, 2004 from the Committee, to Mr. Dick O’Sullivan, General Manager, Punchestown Racecourse, on issues relating to the Punchestown site.
-Letter of 27th January, 2004 from Mr. Dick O’Sullivan, General Manager, Punchestown Racecourse, responding to letter of 7th January 2004.
-Letter of 30th January, 2004 from the Committee, to Mr. John Malone, Secretary General, Department of Agriculture and Food, seeking an up-date on the position in relation to the drawing up and signing of the legal agreement between the Department and Punchestown.
-Letter of 2nd February, 2004 from Mr. John Malone, Secretary General, Department of Agriculture and Food, responding to letter of 30th January 2004.
-Letter of 30th January, 2004 from the Committee, to Mr. Brian Kavanagh, Chief Executive Officer, Horse Racing Ireland, seeking an up-date on the position in relation to the ratification of the agreement between HRI and Punchestown.
-Letter of 2nd February, 2004 from Mr. Brian Kavanagh, Chief Executive Officer, Horse Racing Ireland, responding to letter of 30th January 2004.
-Event Schedule for Punchestown Centre.
-Guidelines for the appraisal and management of Capital Expenditure Proposals in the Public Sector, July, 1994 (Department of Finance).
