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Transport (Córas Iompair Éireann and Subsidiary Companies Borrowings) Bill 2012 [Seanad]: Second Stage

Friday, 7 December 2012

Dáil Éireann Debate
Vol. 785 No. 4

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Transport (Córas Iompair Éireann and Subsidiary Companies Borrowings) Bill 2012 [Seanad]: Second Stage

Minister for Transport, Tourism and Sport (Deputy Leo Varadkar): Information on Leo Varadkar Zoom on Leo Varadkar I move: "That the Bill be now read a Second Time."

I am pleased to introduce this legislation which deals with CIE’s borrowing powers for non–capital purposes. Strengthening CIE’s capacity to raise credit on a sustainable basis is a key element of a wider set of measures designed to place CIE’s finances in a healthier state for the future.

The CIE group has had to confront a very difficult financial situation. As in most business sectors in the State, the current economic environment is very challenging for public transport providers. The cause of the problem is primarily the recession which has resulted in a drop of more than 20% in passenger numbers from the peak in 2007. That has been partly off-set by fare increases, but revenue is down by more than 11% from the 2008 level. The PSO subvention has reduced by 21% between 2008 and 2012 and is due to fall further by 14% over the next two years. The removal of the fuel rebate is estimated to have cost the group approximately €22 million at a time when it has had to absorb higher fuel prices.

In 2006 and 2007, as a result of the CIE operating companies expanding their network of services and the growth in the economy, CIE experienced an increase in passenger volumes and revenues. However, the impact of the economic downturn which started in 2008 resulted in falls in passenger numbers in each year from 2008 to 2011. Once the expected increase in demand did not materialise as a result of the economic downturn, CIE was then faced with an expanded network of services and reduced revenues which resulted in each of the operating companies incurring deficits in each of the years 2008 to 2011, with the exception of Bus Éireann which generated a small surplus in 2011.

While the CIE group reported surpluses in each of year from 2006 to 2008, 2007 was the only year in the period 2006 to 2011 in which the group generated a surplus when the gains from the disposal of fixed assets were excluded, that is, the sale of property. In the past three years, 2009 to 2011, CIE suffered a total loss of more than €137 million after exceptional items. Clearly, this level of loss cannot be sustained and must be addressed.

Since income began to fall in 2008, there has been a succession of measures to deal with the underlying problem, including cost reductions, fare increases, service efficiencies such as the network direct programme in Dublin Bus and similar rationalisations in Bus Éireann, and measures to make public transport more attractive such as the leap card, real-time passenger information, RTPI, and providing Wi-Fi.

The operating companies cost recovery programmes that were started in 2009 in an effort to eliminate these deficits have been undermined by continuing falls in passenger numbers, reductions to operating subvention and increases in costs such as fuel that are outside the control of CIE. While progress has been made in reducing costs and head-count to date, these reductions have not been sufficient to eliminate the deficits in the operating companies.

The 2011 annual report and financial statements for CIE and those of the three subsidiary companies were recently laid before the Houses of the Oireachtas. An unqualified audit report was issued by the group’s auditors on CIE’s 2011 financial statements. However, the auditors have included an “emphasis of matter” paragraph regarding the group’s ability to continue as a going concern. They note that funding and trading difficulties give rise to uncertainty for the business and challenge the group’s ability to continue to trade as a going concern. The board of CIE expects that these uncertainties can be addressed through a range of measures, including the realisation of non-core assets, reduction in cost base, including payroll reductions, multi-annual fare increases and curtailment of an own-funded capital programme.

I have engaged in consultations with the CIE companies and have stressed the need to respond to the PSO subvention funding challenges through further cost savings in their activities. A recovery in passenger numbers and further increases in fares could soften the impact of the reduction in PSO subvention. All concerned in my Department and the NTA must focus on identifying key public transport priorities in cities and across the country. In turn, the PSO public transport service providers will have to achieve greater efficiency and cost effectiveness in the years ahead based on a realistic assessment of the scope and level of contracted services.

Each year, funding is provided for socially desirable but financially unviable public transport services in Ireland. Funding for such services is made available under the Vote for my Department by way of a payment to the National Transport Authority, NTA, for PSO services. In recent years the total subvention paid to the three CIE subsidiaries has been reduced from a high of €308 million in 2008 to €242 million originally earmarked for 2012. On 24 July last, the Government decided to provide additional funding of €36 million to CIE to ensure that the companies could continue to operate for the rest of 2012. That would bring the total subvention for this year to €278 million, higher than the subvention level for 2010 and the fifth highest level of subvention ever. At this difficult time for the public finances it was not easy to find a large amount of additional funds. It involved very difficult decisions in terms of having to divert funding from other worthwhile and important projects and initiatives and imposing sacrifices on others. In 2013, the PSO subvention will be €226.5 million, as compared with €242 million originally allocated for 2012.

I have met regularly with the four chairs and senior executives of the CIE companies and also with union representatives. While facilitating a range of measures to address the problems, I have stressed that significant progress must be made on the development of a realistic, sustainable and robust business plan by CIE to deal with the current economic realities; cost reductions within the CIE group and employee support for same; the sale of non-core assets; and the securing of new credit facilities. Those various avenues are currently being explored. The additional funding for this year only provides a very short breathing space to CIE. It is essential that the management and staff in the CIE companies use this time productively to discuss and implement proposals to cut costs that can help to address the serious financial position in which the CIE group finds itself. In this regard, I am concerned that the current negotiations between management and unions at the two bus companies are concluded as soon as possible. In view of the difficult financial situation of CIE and the need to finalise its business planning for 2013, it is imperative that these discussions bring forward a positive outcome in the next few weeks.

CIE is progressing the preparation of a revised five-year business plan with aggressive targets that will support the reporting of trading improvements in 2013.

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