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Government under pressure to explain why taxpayer will have to pay most into broadband plan

The government was told the private bidder will, “in effect”, recoup its investment by 2028. By then, the State will have invested billions.

Image: RollingNews.ie

Updated May 9th 2019, 11:05 AM

THE GOVERNMENT IS under pressure to clarify the contribution being made by the private operator behind the National Broadband Plan (NBP), after it was told by a senior civil servant that the bidder will “in effect” have recouped all the cash it invests by 2028.

A cost-benefit analysis, carried out by consultancy firm PwC, released by the government yesterday, puts the real value cost to the private operator at €974 million. 

This is less than half of the cost the State is spending on the plan. The government will not end up owning the network once it’s finished, despite making a bigger investment.

Yesterday, Finance and Public Expenditure Minister Paschal Donohoe was asked to confirm the figure in the PwC report, which was carried out just last month.

He told reporters that he was aware of the estimates around the contribution, but said he was not in a position to confirm the €974 million figure when put to him.

The government has stated that the cost to the State is €2.97 billion. This price includes VAT and a contingency fund.

The contingency fund set aside is €545 million, and will only be drawn down in specific circumstances. VAT accounts for €355 million. 

The majority of the €2.97 billion that the State is spending will be paid in the first ten years, although payments will continue over a total of 25 years. 

However, there has been further confusion about whether the State is investing more than the bidder, while at the same time taking more risk,  due to the PwC report also making reference to the ‘nominal cost’ of the project.

Yesterday, over 20 documents and government memos were released showing the Department of Public Expenditure officials, including Secretary General Robert Watt, raised serious concerns about the roll out of the broadband plan. 

The correspondence included stark warnings given to the minister about the value for money of the plan, and one document stated that if the government planned to proceed with the final and last remaining bidder for the plan, it would be a “leap of faith”.

‘Nominal vs real costs’ – what does it all mean? 

The PwC document puts the total nominal cost of the entire project at €4.6 billion over the 25 year period, implying that, when the plan is analysed in this manner, the preferred bidder is investing over €2 billion.

The documents released yesterday suggest the State is covering the up-front cost of building the network, while the bidder is covering the operational costs once it is up and running.

The initial investment by the bidder will be minimal – with the costs hitting them later on when they are operating the network (and paying rent to Eir for use of their poles for the fibre cable etc).

So, while the nominal cost to the bidder implies an investment of over €2 billion in the plan, the real cost to the private operator is actually €974 million, according to the PwC document. 

This is because the investor will recoup money through user charges or fees paid for using the network, and factors such as dividends, interest and share capital. 

Robert Watt told Minister Donohoe: “I note that by 2028, the private operator is projected to have received [redacted] in dividends and interest, together with a repayment of [redacted] of the initial share capital, while the State will have spent up to €2.44 billion by that stage.

In effect, the private operator will have all of their monies paid back while the Exchequer could have paid out almost €2.5 billion. 

The government refused to disclose yesterday if these PwC figures are the final figures on how much the bidder will contribute. 

A spokesperson for the Department of Communications confirmed to TheJournal.ie that the overall estimated project total cost is about €5 billion (excluding VAT) over 25 years.

The maximum possible cost to the state overall will be €3 billion over 25 years (including VAT and contingency which will be strictly overseen), they said.

“State contribution to the total cost of €5 billion is a therefore a maximum of  €2.6 billion (i.e. excluding VAT, as the VAT is paid back to the State and not to National Broadband Ireland towards cost of the project).

“The remaining €2.4 billion cost will have to be met by National Broadband Ireland (NBI). This cost will be met by investment by the company as well as commercial revenues the company receives over the 25 year period,” added the spokesperson. 

The spokesperson added that the subsidy will not be paid to National Broadband Ireland until the houses are actually passed and connected.

“The contract will have a comprehensive set of protections and legally binding obligations set and a suite of key performance indicators to ensure the service is maintained appropriately.

“National Broadband Ireland will be obliged to continue to operate the network for 10 years after the contract ends and NBI will fund the operation, maintenance and any reinvestment in the network with no funding from the State,” they concluded. 

‘Leap of faith’

In refusing to confirm the final figure yesterday, Donohoe said many private companies bid to take part in State contracts and it would not be right to reveal such details.

Questioned about the controversy surrounding the broadband plan at a press conference in the Netherlands last evening, Taoiseach Leo Varadkar said he had “absolutely” had confidence in Robert Watt, and had tremendous respect for him. 

Asked whether he agreed with the senior civil servant’s contention that proceeding with the project would be a leap of faith, Varadkar said that perhaps it was but that it was a leap of faith “in believing in the future of rural Ireland”. 

With mounting pressure on the government and minister to explain the reasoning behind ignoring the department’s advice, the next question being asked is for clarity around the level of contribution the private operator is making towards the project.

It was a question posed to Communications Minister Richard Bruton yesterday, but like his Cabinet colleague, he would not reveal the figure, stating that “in terms of the sum of the equity involved, I am not going to prejudice the final signing-off on a contract… by revealing a figure that, as deputies can see from the redacted documents, is a confidential figure”.

Sinn Féin leader Mary Lou McDonald said serious questions remain unanswered.

“While we know that taxpayers will be liable for €3 billion for this project, it remains unclear what level of investment will be made by Granahan McCourt Capital.

“Indeed the government has refused to release this information. The redacted nature of the documents would suggest that the consortium have very little skin in the game and could walk away at any time,” she said. 

It is understood Donohoe also faced questioning about the figure at last night’s Fine Gael parliamentary party meeting, however he would not reveal the total contribution to his own party colleagues.

The minister said yesterday that the decision to proceed with the NBP was one of biggest decisions he has made. 

Donohoe said he received lots of different advice on the issue, stating that the department speaks with “one voice when they make a recommendation to a minister”.

He said there was a “robust” debate between departments on the matter, as is clearly shown in the documents released yesterday.

The minister acknowledged that his department “has a different view in relation to this”.

At Leaders’ Questions this afternoon, Tánaiste Simon Coveney reiterated that the figure of how much the bidder will pay will not be given at this time.

“The government is not able to provide a figure as there’s still a negotiation to conclude. That figure will be published in time,” he said. 

Fianna Fáil’s Timmy Dooley replied that he felt the government was being “highly disingenuous” in the whole affair. 

- With reporting by Daragh Brophy and Sean Murray 

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