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Re: Construction of Terminal 2 and new Parallel runway at Dublin Airport.
I am writing to you as our local T.D. in the light of the recent decisions by An Bord Pleanála in favour of Terminal 2 and the new parallel runway at Dublin Airport. We would like to raise with you the issue of the construction of these modules of Dublin Airport's expansion programme. We would like to meet you at your earliest convenience to discuss the matter. It is our understanding that the Government, as principal shareholder in the Dublin Airport Authority (DAA), is required to decide, following the granting of planning permission, if construction should actually take place. Before proceeding with construction the shareholder is required to be satisfied that the proposal meets all the requirements and guidelines applying to infrastructure projects of this scale. It is our view that these requirements have not yet been met(1). I would remind you of what then Minister for Transport Minister Seamus Brennan said in the Dáil on 4 May 2004: "The proposed new runway will of course be subject to planning permission being obtained from Fingal County Council. In due course I will also consider this runway proposal from the aviation policy and shareholder perspective." We met his successor Minister Martin Cullen on 23 March 2005. Minister Cullen told us that "planning permission does not equal construction" confirming that if the DAA's proposed new parallel runway was found not to be in the national interest it would not be built, regardless of planning permission. We took this to be a reiteration of Minister Brennan's position. It came as a surprise to us when Minister Cullen seemed to reverse this position in the Dáil on 22 June 2005 when he stated that the DAA would build the runway, provided only that planning permission be given(2). It is our expectation that the new Government will revert to correct procedure and ensure that the issue is brought to cabinet where the shareholder decision can be properly made in the light of a full assessment as required by various Government guidelines and commitments, including those in the Programme for Government of June 2007. Department of Finance Guidelines. Department of Finance guidelines for the appraisal of capital projects have been in force since 1994 and require that major projects be subjected to full cost benefit analysis (CBA). These guidelines were revised and updated, and published in February 2005 as: "Guidelines for the Appraisal and Management of Capital Expenditure Proposals in the Public Sector(3)." The revised guidelines required all projects estimated to cost over €50 million to be subject to a full CBA. In October 2005 Finance Minister Brian Cowen, in his "Value for Money" speech, announced that henceforth all projects costing over €30 million, would have to be subjected to the rigorous application of cost benefit analysis(4). Minster Cowen restated this requirement on announcing the 2007 Estimates on 16 November 2006(5). We wrote the Minister Cowen on 21 October and 1 November 2005 about the failure of the DAA to conform to the Department of Finance's Appraisal Guidelines that require a cost benefit analysis in this case. In a reply to UPROAR of 30 November 2005 it is stated(6) :
The letter goes on to say:
This follows Minister Martin Cullen's assurance to the Dáil on 22 June 2005 that the Finance guidelines had been complied with, at least that he had been so assured by the Chairman of the DAA(7). The Chairman had in fact said (as revealed by an FOI request) that the DAA's investment appraisal procedures "reflect" the Finance Guidelines(8). We have taken issue with the use of the dubious term "reflect" and insist that the Finance guidelines have not been adhered to. The weak word "reflect" contrasts sharply with the Department of Finance's term "must comply with" and left considerable doubt as to whether the appraisal carried out by the DAA actually fully conformed to the Finance Guidelines(9). The DAA has now admitted that it did not carry out a cost benefit analysis as required. In a paper presented to the oral hearing into the new parallel runway at An Bord Pleanála, the DAA's Mark Foley admitted that the DAA did not do a cost benefit analysis for the proposed runway(10). He stated: "DAA does not believe an unbounded Cost Benefit Analysis is required, relevant or beneficial for either the north parallel runway or indeed the overall CAPEX programme..." Whatever the term "unbounded" means, there is no escaping Minister Cowen's requirement for "a full scale cost benefit appraisal" for all capital investment proposals by state bodies with an estimated cost over €30 million. This is a clear admission by the DAA that no CBA was done for the proposed runway, and presumably not for the terminal either. The DAA refers to various studies done, some by consultants, to justify their proposals. It is perfectly clear that none of studies even resemble cost benefit analyses even if they might occasionally use some relevant terminology(11). The DAA has also tried to claim that the 2005 guidelines came into force after planning permission had been applied for in December 2004(12). This ignores the fact that the earlier 1994 guidelines were previously in force and these also required a full cost benefit analysis for large projects(13). Attempting to avoid due process by such Jesuitical means will not work, as failure to carry out the proper analysis before planning permission is sought (as the guidelines intend) does not excuse the sponsoring agency from fulfilling the requirements of those guidelines at a later date, nor does it permit the shareholder to excuse the sponsoring agency from its responsibility to have that analysis carried out before a decision to construct is made (see the Inishbiggle case below). It is therefore evident that, in spite of the DAA Chairman's statement, the DAA has not conformed to the Department of Finance Guidelines in that it has not carried out the required cost benefit analysis. No amount of obfuscation will change that fact. Our claim was always easily refuted by the production of a full CBA to Department of Finance standards. That has not happened because no such study exists.
In any case, Department of Finance Guidelines require a reassessment after planning permission has been given to ensure that planning conditions attached do not make unviable, a proposal previously assessed as viable. There is a presumption that proposals have been properly assessed before planning permission is sought - something that did not happen in this case. At 2.11 the 2005 Finance Guidelines state: "If a project requires planning permission, a final decision to proceed with it should not be taken until permission is obtained from the appropriate Planning Authority or An Bord Pleanála. The implications of any conditions attaching to the planning permission should be fully assessed, going so far, if warranted, as to consider whether the project should be abandoned." In the light of the extensive conditions attached to both decisions by An Bord Pleanála, this process cannot now be avoided before a decision to proceed is made by the shareholder. Substantial additional costs will be added, for example, by the new sound insulation programme in schools and homes and by the levies to be paid to Fingal County Council. As an earlier cost benefit analysis does not exist, a full analysis incorporating the impact of all planning conditions must now be carried out.
There are two further appraisal procedures that have not been followed, such that if the DAA's assertion that his procedures "reflect" the guidelines is accepted, these procedures will still apply to the DAA's proposals. The first of these is the appraisal guidelines of the new NDP 2007-2013. Terminal 2 and new parallel runway investments are part of the new NDP (Chapter 7) and under Chapter 12: "Value for Money" they must be subjected to a full cost benefit analysis. In this case assertion will not suffice as evaluations must "be published and submitted to the relevant Select Committees of the Oireachtas…" NDP projects are now also subject to EU appraisal standards of evaluation as apply to funds formerly provided under the European Structural and Cohesion Funds(14). These standards compliment the Department of Finance Guidelines but in some respects are more rigorous and clear in specifying correct methodology. This is notable in the case of state-owned land that has to be valued at opportunity cost. This means that land destined for the proposed runway at Dublin Airport must be valued at full opportunity cost (about €2 million per acre) and not at historical value as currently applied by the Commission for Aviation Regulation nor at the zero value implicit in DAA evaluations which completely ignored the value of this land(15). It should also be noted that in "having regard to" the new NDP in reaching its decision, the Board has not taken Chapter 12 of the NDP on "Value for Money" into account. That a project is mentioned under the NDP is not sufficient to assert that it is government policy and should be proceeded with. It must also have been evaluated and found to be viable under the very explicit evaluation criteria which are an essential part of the new NDP(16). "Value for Money" is also Government policy both under the NDP and under the Finance and NDP guidelines.
There is then the agreed Programme for Government of June 2007. This document repeats the CBA requirement: "All capital projects over €30 million will require a full cost benefit analysis in line with the Department of Finance guidelines of February 2005" and adds: "..a multi-criteria analysis of all transport projects to take into account environmental factors on a whole project basis." While we would insist, as specified in EU guidelines, that full cost benefit analysis should incorporate estimated environmental costs it is notable that the NRA's cost benefit guidelines actually exclude environmental effects(17). In our opinion that is a serious methodological error that means our road network is being constructed regardless of environmental and other externality costs(18). It is therefore of some comfort to note that, in future, environmental costs will be fully accounted for in all transport infrastructure proposals; roads and airports included. We insist that this Government commitment be honoured and that, before any decision is taken by the shareholder, a full CBA incorporating environmental effects be carried out and, as is required under the NDP, be published. We would
also point to the Programme for Government's target of a reduction of
3% per year in our greenhouse gas emissions and ask how the Government
will ensure Dublin Airport's expansion plans conform to that target
given the degree to which those plans facilitate the unsustainable growth
of air travel at Dublin Airport.
Recently the Commission for Aviation Regulation (CAR) engaged consultants (Cambridge Economic Policy Associates - CEPA) to undertake a cost benefit analysis of a part of the DAA's expansion proposal. This analysis in fact produced a negative result even though capital costs were understated, no externality (e.g. environmental) costs were included, no land costs were included and benefits were exaggerated in that they included benefits from a much larger capital project than costed. Nevertheless, UPROAR agreed this analysis was a useful first step and that the analysis should be completed(21). It appears that the CAR does not see any need to complete it as it has drawn on its preliminary findings in making its final determination(22). The CAR notes at 3.2 of its Final Determination: "..the Commission is satisfied that it has complied with its statutory requirements and it is therefore not necessary to conduct any further analysis."
The Inishbiggle (Inis Bigil) cable-car case is instructive(23). Even after having received An Bord Pleanála approval, the proposed cable car link between Inishbiggle and Achill Island was not followed through to construction because the Finance Guidelines were belatedly applied and the analysis found against the proposal. As the Irish Times reported: "However, due to the lapse of time, the Minister was obliged in line with "current guidelines" on Exchequer capital expenditure to conduct a review of the plan(24)." The review showed that the proposal was not economically justified relative to alternatives. In the course of our enquiries it was pointed out to us that the Finance Guidelines say that no matter how far advanced a project might be, there should be no hesitation to reconsider it, if it seemed not to be viable, and to abandon it if it proved so(25). The Inishbiggle case demonstrates that even after planning permission is given, Department of Finance Guidelines apply and a proposal has to pass assessment under those guidelines before it can proceed to construction. Appeals to the costs of further delay to undertake the required study cannot override the essential need to demonstrate that a proposal is fundamentally viable. There are no gains to be had from moving ahead with a wasteful proposal no matter how urgent its backers may insist it is and that delay costs money. Those same backers should have ensured proper procedure was followed in order to avoid such delays. Any delay is due to their management failure and not to those who insist on due process. Delaying a wasteful project saves money. Further, as pointed out above, following planning permission, a reassessment is required under the Guidelines to ensure that planning conditions do not make a previously viable proposal, nonviable. That cannot be done until the basic cost benefit analysis has been done. If that has not been done before application for planning permission, it must be done following planning permission, and in the light of any planning conditions attached.
You and the Green Party have been vocal supporters of our demands for a proper evaluation of Dublin Airport's expansion proposals with due regard to alternatives. In the Dáil on 16 November 2005 you made a strong appeal for such an evaluation. You said:
And:
And:
Talking to Vincent Brown on RTE Radio 1 on 13 June 2007, Ciaran Cuffe, defending the Green Party's achievements in its negotiations on a Programme for Government said:
We expect the Green Party in Government to maintain its position on Dublin Airport's unsustainable expansion plans and to insist that Government policy on the appraisal of capital projects be strictly adhered to in regard to those plans and in particular that the Programme for Government commitment on the inclusion of environmental costs of transport projects be adhered to. We expect such an analysis would confirm our finding of an €8.4 billion cost of climate change damage(20). It is of note that in the case of the proposed new runway the Inspector found in our favour and recommended that planning permission be refused. Her objections were largely those of the proposal's environmental impacts, which in her view had not been adequately addressed, particularly in the case of noise.
We believe that before proceeding to construction, the Government, as shareholder, must satisfy itself that construction is justified by reference to various appraisal guidelines that apply. We believe the various appraisal guidelines that apply to both Terminal 2 and the new parallel runway have not, so far, been applied. These guidelines all require a full cost benefit analysis of the DAA's proposals. Apart from the very recent preliminary work done for the CAR that produced a negative result, no cost benefit analysis exists. This analysis is required under at least three sets of guidelines. The Department of Finance has guidelines for the appraisal of capital projects since 1994. These require CBA for major projects which must be confirmed in the light of planning conditions. More recently the Minister for Finance said a full CBA had to apply to all projects costing more than €30 million. Further, Terminal 2 and the new parallel runway are included in the new NDP 2007-2013. The NDP requires full CBA for projects over €30 million and also requires publication of the analysis that must also conform to EU appraisal standards. The agreed programme for Government reiterates this requirement and adds that all transport projects must be subject to a multi-criteria analysis that takes into account environmental factors on a whole project basis. Even if it is Government policy to expand Dublin Airport's infrastructure, if actual proposals fail to meet appraisal guidelines they cannot be built. "Value for Money" is also Government policy and is a necessary condition for a proposal to be consistent with policy. According to An Taoiseach, it is also a necessary condition for sustainability(27). We expect that, as our T.D., you will honour your commitments to us before and after the last General Election and will insist with Green Party cabinet members that proper appraisal procedures be followed in the case of the expansion proposals of Dublin Airport. The results of such analyses should then be published and brought to Cabinet where the Government as shareholder can make a properly informed decision on those elements of the plan now approved by An Bord Pleanála. ______________
Endnotes
(2) In the Dáil on 22 June 2005, in reply to questions regarding the new runway at Dublin Airport, Minister Cullen said: "I have no proposal to commission any study of alternative options for the provision of airport capacity to serve the greater Dublin Area. Subject to planning permission, it is envisaged that the Dublin Airport Authority will provide such capacity through the expansion of existing facilities and infrastructure at Dublin Airport. "I am informed by the Dublin Airport Authority that all capital projects are subjected to rigorous appraisal procedures and ultimately board approval, in compliance with the guidelines issued by the Department of Finance." (3) See: http://www.finance.gov.ie/documents/publications/other/capappguide05.pdf (4)
"Value
for money is also not simply an item to be ticked in project appraisal.
Rather it is the outcome of a carefully considered appraisal system
and culture that takes into account, as objectively as possible, the
overall benefits and costs of a given project and seek to make sure
that budget estimates are met….Currently, Department of Finance
Guidelines require that projects with value in excess of €50 million
are subject to full scale cost benefit appraisal. I believe it is appropriate
to reduce the project value level to €30 million. This approach
will include identification and carefully quantified analysis of all
the relevant project costs and benefits, including indirect costs as
well as the identification of any risks of cost escalation. The principle
of cost-benefit analysis is that a project is only desirable if the
benefits exceed the corresponding costs." See: http://www.finance.gov.ie/viewdoc.asp?DocID=3561
(6) The letter was under the signature of Breda Rafter, private secretary to the Minister for Finance. (7) Minister Cullen said: "I am informed by the Dublin Airport Authority that all capital projects are subjected to rigorous appraisal procedures and ultimately board approval, in compliance with the guidelines issued by the Department of Finance." (8) Following a Freedom of Information request, the Department of Transport, on 28 July 2005, provided, inter alia, "an extract from the Confidential Report of Dublin Airport Authority to the Minister in connection with the Company's Annual Report for the year 2004 which relates to the Department of Finance guidelines." The extract stated: "The capital appraisal and management processes in the company reflect the Guidelines for the Appraisal and Management of Capital Proposals issued by the Department of Finance." (9) Page 6 of the 2005 Guidelines says: "All Government Departments and public bodies (semi State bodies, local authorities and health agencies, etc.) and all bodies in receipt of public funding for capital purposes must comply, as appropriate, with the relevant requirements of these guidelines. (10) "Submission to Runway Planning Enquiry", by Mark Foley, Director - Capital Programmes, Dublin Airport Authority, September-October 2006. (11) See: "Submission to Runway Planning Enquiry", Mark Foley (Director - Capital Programmes), DAA. Mr Foley went so far as to claim DAA conformity with Finance Guidelines because the Commission for Aviation Regulation uses the concept of 'rate of return' in its determination of a Weighted Average Cost of Capital when determining airport passenger charges. This is beyond absurd and is as convincing as claiming that Napoleon must have won the Battle of Waterloo because he, like Wellington, used cavalry! (12)
See: "Submission to Runway Planning Enquiry", Mark Foley (Director
- Capital Programmes), DAA. See also page 47 of "First Party Response
to Third party Appeals" dated 19 December 2006 and presented by
tiros resources limited on behalf of the DAA to the oral hearing on
Terminal 2 in April 2007: "it is a matter of fact and law that
DAA's application precedes the release of the 2005 Department of Finance
Guidelines.." (15) See also
(17) Paragraph 2.3, "Guidelines for the Appraisal for Cost Benefit Analysis.", National Roads Authority, St Martin's House, Waterloo Road, Dublin 4, June 2005. (18) The EU Guide to cost benefit analysis states on page 31/32:
(20)
Using Stern Review figures, we estimated that the costs in terms of
climate change damage due to the extra aircraft emissions arising from
Dublin Airport's expansion would be some €8.4 billion. We expect
any economic appraisal of those plans to confirm our estimate, which
is conservatively based. It is, however, arguable that only half this
cost should be attributed to Dublin Airport, with the other half assigned
to partner airports. See here. (23) We made a Freedom of Information request to the Department of Community, Rural and Gaeltacht Affairs and were provided with substantial information outside the FOI Acts on 20 January 2006. This included a report by consultants McClure Waters and Malachy Walsh and Partners dated March 2005. The terms of reference approved by the Minister were to review the recommendation of a 1999 Consulting Engineers' report on the cable-car "having special regard to cost benefit analysis." (24) See: "Inishbiggle residents lose their 30-year fight for cable-car link" by Lorna Siggins in the Irish Times, 10 December 2005 (25) At 1.3 the 2005 Finance Guidelines state: "Where necessary, Departments and public bodies should be prepared at any stage, despite costs having been incurred in appraising, planning and developing a project, to abandon it if, on balance, continuation would not represent value for money." (26) Reported in Northside People, 2 - 10 July 2007. (27) An Taoiseach Bertie Ahern made the following comment at the "Towards Sustainable Airport Development Conference" on 23 October 2006:
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