Friday 23 August 2019

Rural broadband: Consortium will invest just €220m up front

Taxpayers are on the line for up to €3bn for the project

Communications Minister Richard Bruton. Photo: Tom Burke
Communications Minister Richard Bruton. Photo: Tom Burke

Kevin Doyle, Cormac McQuinn and Adrian Weckler

THE consortium responsible for rolling out broadband to more than 500,000 homes and businesses in rural Ireland is investing just €220m up front.

Communications Minister Richard Bruton revealed the figure this afternoon amid much criticism from Opposition parties who claim the State is carrying too high a burden for the project.

Taxpayers are on the line for up to €3bn and will not own the infrastructure at the end of the 25 year contract.

But Mr Bruton said this is a “really important investment for rural Ireland”.

He said the Government has evaluated all of the options available and cannot identify a cheaper way of bringing high-speed broadband to every home in the country.

The minister told RTÉ’s ‘News At One’ that officials examined the idea of owning the fibre lines at the end of the contract with Granahan McCourt but decided the “least risky” option was to leave it in the hands of the company.

He insisted that by allowing the company retain ownership they would incentivised to future proof the network.

Mr Bruton said the company will ultimately be spending €2.4bn, although much of this will be offset by income from users.

“NBI shareholders, as part of its initial funding of the project will invest €220m in equity and working capital,” said a National Broadband Ireland spokeswoman.

“This investment is the initial capital required to commence design and build activities of the NBP network and is invested ahead of the Government subsidies, thereby placing this investment at risk first. NBI will use these funds to get the project up and running, and this a first, minimum spend.”

The company declined to reveal any other figures around its costs and expected contract details in rolling out the €5bn network. The state has already revealed that its subsidy may rise to €2.6bn.

“NBI is finalising negotiations on contracts with over 40 specialist subcontractors to assist in delivery of this major project and it is not appropriate that commercially sensitive information be disclosed which could prejudice these negotiations,” said the spokeswoman.

“Such negotiating parameters are normal for large infrastructure projects and it is for this reason that, prior to contract signing, commercial investments are not disclosed.”

The project has come in for criticism over the lack of information around the balance between what the state and National Broadband Ireland (NBI), the preferred bidder controlled by businessman David McCourt’s Granahan McCourt entity.

Critics that include the Department Of Public Expenditure’s senior civil servant, Robert Watt, have asked whether the state is paying too much for the rural broadband rollout, questioning whether NBI is taking enough risk under the terms of the project deal.

However, the company says that its long term financial obligations under the contract are sizeable.

“National Broadband Ireland, as preferred bidder for the National Broadband Plan, will be required to meet financial obligations of €2.4 billion in the delivery of the project over 25 years,” said the spokeswoman.

“The contractual and financial obligation on National Broadband Ireland includes shareholder equity, working capital, performance bonds, operating and revenue risks. These are not capped, unlike the State’s subsidy, and NBI also assume both construction and commercial revenue risk.

“A return will only be generated if the project is delivered on time, and within budget, with any overrun costs borne by NBI. In addition, NBI's return will always be capped at the level of our initial contribution and is not related to the level of State subsidy.

“Any over-performance will be subject to rigorous clawback mechanisms, meaning the overall State subsidy would be reduced.

“In addition, NBI shareholders will provide significant performance bonds relating to contract deliverables during the construction phase of the NBP. In the event that commercial take-up is lower than expected at any time throughout the 25 years, NBI shareholders will be on risk to provide additional capital - with no return to shareholders on this.”

Taoiseach Leo Varadkar has appealed to opposition parties “not to rule out” supporting the National Broadband Plan despite their serious reservations over the costs.

Mr Varadkar has clashed with Fianna Fáil and Sinn Féin in the Dáil over the plan, telling them: “There isn’t a better option.”

He said the roll-out of broadband would good for the economy, environment, education and health.

The Taoiseach described it as “the biggest investment in rural Ireland ever”.

Asked by Micheál Martin whether he agrees with the Department of Public Expenditure that the project carries “unprecedented risk”, Mr Varadkar said he did not.

He said the Government had found €8bn for motorways to connect the country’s cities.

Mr Varadkar said scrapping the plan at this stage would only result in a delay.

“We’ll be saying to rural Ireland you’ve wait too long and we’re going to make you wait longer,” he said.

Sinn Féin’s Mary Lou McDonald told the Dáil the bidder “doesn’t have adequate skin in the game”.

Ms McDonald claimed the NBP represents a “massive state subsidy” to a private firm for infrastructure the State won’t own. She said she finds this “unbeleiveable”.

Mr McDonald asked Mr Varadkar if he has “absolute and total confidence” in the deal and if he will guarantee delivery of rural broadband.

Mr Varadkar said he’s confident National Broadband Ireland has the capacity to deliver “and if it does not there are protections in the contract”.

If the company doesn’t deliver, if it seeks an increased subsidy or fails to meet certain milestones the State can terminate the contract, Mr Varadkar added.

Mr Varadkar said Ms McDonald is “zeroing in” on the initial €220m investment that the company is making.

He said the €220m being put forward by the Granahan McCourt group was “only the initial upfront investment”. He said the company has to come up with €2.4bn overall.

“If the company doesn’t deliver they will have to put in more equity, if they deliver then of course they will get  their investment back and a return…

“The risk to state is capped, the risk to company is not and I think it’s important to understand that.”

He said there were other bidders and said Eir put in an initial bid for a similar amount of money.

Earlier Labour Party leader Brendan Howlin accused the Government of entering a “sweetheart deal”.

He said the fact Granhan McCourt will spent a total of €2.4bn was “spin” because much of that money will be set against guaranteed income.

Mr Howlin said during his time as Public Expenditure Minister he never received any advice as damning as that which Paschal Donohoe received from his officials in relation to broadband.

He predicted there would be a tribunal in a decades time about the rollout of broadband.

Mr Howlin compared the NBP to the National Children’s Hospital.

He said it would be “unthinkable” for the State to spend €1.7bn on the hospital and not own it at the end.

He asked why it’s any less unthinkable to “give away” the broadband network. 

Mr Varadkar said the NBP is a project Labour should be proud of given their former ministers’ involvement when the plan was first announced by the last government.

He said that in terms of ownership the infrastructure consists of poles and ducts.

He said they belong to Eircom after the company was sold off 20 years ago.

He said if the network was to be replicated by a State company the cost would be phenomenal.

He said any attempt to renationalise Eircom could be met with legal battles and ultimately the cost of rolling out broadband could cost between €8bn to €9bn if that avenue was tried.

Communications Minister Richard Bruton is due to appear before an Oireachtas joint committee today to discuss detail about the National Broadband Plan.

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