On June 15, as a long-awaited agreement on the Programme for Government paved the way for the formation of the new cabinet, solicitors at Dublin law firm Mason Hayes and Curran advising the Department of Communications on the National Broadband Plan put the finishing touches to a redacted version of the contract with the Granahan McCourt-controlled group of companies selected to deliver high-speed Internet connectivity to half a million rural homes and businesses.

The documents have been ready ever since, awaiting sign-off from the new minister tasked with overseeing the broadband roll-out, Eamon Ryan, but not made public. Until today.

The copy of the contract released by the minister runs to well over 1,000 pages. Its exact length is unknown because entire sections have been withheld from the public eye on the basis that they are commercially sensitive. What we can see tells us a lot about the corporate structure, the technical requirements and the safeguards put in place to protect the largest investment in public infrastructure in the history of the State, and very little about the metrics used to decide whether or when to disburse up to €3 billion in taxpayers’ money.

The subsidies and the claw-backs

The contract sets out the conditions for the State to pay out hundreds of millions of euros in Exchequer money (and EU funds, as provisions are made for eligibility to European Regional Development Fund support) annually for years to come to NBI Infrastructure, the main vehicle set up in Ireland by David McCourt’s US-based firm Granahan McCourt to deliver the plan.

The total subsidy, for which no exact amount is pre-determined, will result from a combination of multiple quarterly payments made up of:

  • “Deployment milestone payments”, paid upon delivery of the network as it is rolled out over the next seven years;
  • “Ongoing capital payments” also conditional upon network roll-out, but available throughout the 25-year contract period; and
  • “Connection milestone payments” due to NBI every time 1,000 new customers choose to connect to its network, up to a maximum of 469,000.

Although the complex mathematical formulae used to calculate ongoing capital payments and deployment milestone payments are public, their euro amounts and the date each is expected to be paid after reaching a given target are entirely redacted.

The only detail available on the milestones themselves is high-level targets including a requirement to deploy the network to 60 per cent of the area covered within five years, and all premises within seven years. Once the contract drills down into the number of buildings to be passed by broadband lines each quarter or the key performance indicators used to measure the quality of the service, entire paragraphs and annexes go blank.

Independent certifiers due to be appointed jointly by NBI and the Department to verify the achievement of milestones will presumably have access to an unredacted version of the requirements.

Alongside technical verification, the contract establishes a sophisticated infrastructure to avoid “over-subsidy” of the project, notably as part of Ireland’s obligation under EU state aid rules. This relies on a financial model and a cost model for the project, both of which are “produced in Microsoft Excel 2013 or fully compatible versions or other applications satisfactory to the Minister”, the contract specifies.

The spreadsheets contain a forecast of all revenues, costs, funding and subsidy requirements for the next 25 years. NBI is now required to input actual costs on a quarterly basis to measure financial performance alongside technical targets.

This is crucial because the Government was clear at the time of signing the contract last November that the committed subsidy of just under €3 billion including Vat was an absolute maximum, with mechanisms built in to reduce payments or claw back sums deemed unnecessary support if costs turned out to be lower than planned. 

The contract spells out one specific example: “If at any stage during the deployment period NBPco [shorthand for NBI INfrastructure] identifies an alternative way of procuring fibre and/or poles (i.e. different to that set out in the NBPco Solution, project cost model and project financial model) that will: reduce the subsidy payments; and/or increase the likelihood and/or amount of deployment claw-back benefit.” 

The NBPco Solution, which is the document detailing how NBI intends to deliver the project, is unfortunately redacted in its entirety, giving no indication as to how fibre and poles are to be purchased and why a better bargain could be found for them. Should this be the case, as with any other cost turning out to be lower than forecast, the Government would apply a deployment claw-back worth half the difference.

The company must review its internal rate of return before paying any dividends. A calculation method ensures that NBI’s shareholders do not pocket a return higher than a (redacted) threshold. 

Aside from capital costs, the contract also opens an avenue for the State to recoup money if the network fails to perform in line with agreed technical benchmarks. In this case, a penalty points system will apply with points totted up at the end of each quarter and “converted to a payment deduction (i.e. performance credit) that shall be applied to the calculation of the ongoing capital payment for the subsequent quarter”.

A third level of protection against over-subsidy applies at the level of NBI Infrastructure’s company accounts. The company must review its internal rate of return before paying any dividends. A calculation method ensures that NBI’s shareholders do not pocket a return higher than a (redacted) threshold. 

If NBI Infrastructure makes too much money, the excess return will be clawed back before distributions are made and placed in a special account. It may be used under certain circumstances if the company later finds itself under-capitalised.

A final over-subsidy test will take place at the end of the contract. The project financial model (redacted, remember?) has already set an expected valuation for NBI Infrastructure after 25 years. At that point, an actual terminal value will be calculated, using ten times its average annual Ebitda of the previous three years excluding subsidy payments. If the company turns out to be worth more than expected, the Department will consider this gain, deduct any net debt on the balance sheet, and charge 40 per cent of the resulting sum as a terminal value claw-back.

The service: no discrimination on retailer, speed or price

What will rural customers get for the State’s investment? To comply with EU state aid rules, the contract states that NBI must deliver a “step-change in broadband availability” and end-user experience while remaining affordable, re-using existing infrastructure as much as possible and offering wholesale connectivity for commercial companies to market as retail products. 

This means NBI is banned from selling internet access directly to households and businesses, unless they are refused a contract by three separate retail providers. It is also obliged to treat all retail providers equally.

The minimum technical specifications for all connections in the contract includes a download speed of 30Mbps and an upload speed of 6Mbps – a major improvement in many rural locations, yet already out of date as NBI announced this month that it would offer a minimum download speed of 500Mbps, up from a previous commitment of 150Mbps.

The contract also provides for premium products with a higher quality of service, such as those for business customers, and NBI said such packages would be available with download speeds of 1Gbps.

Crucially, these commitments apply to “every person and business in the intervention area  without access to high-speed broadband”, as NBI publicly stated. The contract specifies that the company “is not permitted to offer basic broadband services … which do not deliver the minimum performance and service specifications”. It adds that “any premises built after the commencement date” will be covered too.

Contractual obligations extend to customer services, with an obligation to offer appointments within four-hour slots between 8am and 8pm from Monday to Saturday if a technician needs to visit an end-user’s premises for installation or repairs. 

Although wholesale prices are determined in redacted documents, a reference to the pricing arrangements currently in place between Eir and other retail providers on the existing phone network confirms earlier commitments that new rural broadband services should not be more expensive: “In respect of the minimum bitstream wholesale product, the wholesale price as at the commencement date shall be no more than the regulated price for bitstream as set out in the Open Eir Reference Offer,” the contract offers as an example.

It includes provisions for NBI to continue operating after the 25-year initial contract period, which may be extended by increments of five years.

The companies: a multinational structure with a ministerial golden share

While the contract is between the Minister for Communications and NBI Infrastructure, it also details the role of another group company, NBI Deployment. Both are subsidiaries of Metallah, Granahan McCourt’s holding company in Ireland for the project. NBI Infrastructure and NBI Deployment’s boards both follow the contractual composition set out for NBI Infrastructure, which must include a non-executive chair, a ministerial appointee, and at least two Granahan McCourt appointees and one independent director. 

The boards of the two companies currently include Miami-based David McCourt; six other overseas Granahan McCourt directors with addresses in the US and the UK; Paul Haran, a former secretary-general of the Department of Enterprise and chair of UCD Business School  with previous experience on the boards of Glanbia, the Mater Private, Bank of Ireland and eNet, another former Granahan McCourt telecoms company based here; and, in the case of NBI Deployment only, Department of Communications assistant secretary Philip Nugent.

Click image to enlarge map

The contract, reflected in the company constitutions, imposes that NBI Infrastructure, which will own the network, must locate all its equipment and bank accounts within the Republic of Ireland for 25 years. The company itself must remain an Irish designated activity company, tax resident in the state and establish no subsidiaries. It cannot move out of the State nor become a listed company. It is not allowed to sell its assets or have them encumbered by charges such as mortgages.

The minister for communications holds a golden share (with no voting rights) allowing them to block any change to these corporate commitments and giving them the right to refuse any new shareholders. An additional shareholders’ agreement and a governance protocol have been signed, but it was redacted out of the contract. 

The minister has also registered a charge against 100 per cent of the company’s shares, giving the state first security over its ownership. The charge includes a covenant by which Metallah “continue to be the holder of 100 per cent of the issued share capital”.

The minister has a number of options if the contract between the State and the company is terminated, including a call option on its entire capital. This right of first refusal could see the taxpayer acquire NBI Infrastructure and its network for a price determined in redacted documents.

Other references to the end of the contract mention a share option and an asset option, which indicate that the Government could choose to acquire the company or just its network at the end of the contract, but detailed conditions for this to happen were not published.

The subcontractors: eNet, Eir and Actavo

Aside from NBI Deployment, the contract identifies six key subcontractors and gives the minister the right to refuse any other appointments: 

  • eNet, a Granahan McCourt company previously contracted to run backbone networks for the Government in Ireland’s main towns and later sold to the State, is now set to provide “backhaul capacity” for rural broadband;
  • Open Eir, the wholesale division of eir, is due to provide access to its poles and ducts;
  • Nokia will provide equipment;
  • Actavo, KN Networks and UK-based Kelly Comms are the main construction and line roll-out contractors, including design and planning.

Just like NBP Infrastructure, key subcontractors are subject to claw-backs if their services turn out to be over-subsidised. Under the contract, NBI must pay subcontractors within 30 days.

The safeguards: disclaimers and step-in rights

Beyond the lock on asset ownership, the contract is laced with disclaimers, conditions and clauses designed to protect taxpayers’ money across a range of undesirable circumstances. Some of its initial provisions exclude any government liability for the level of revenue for NBI: “All risk associated with the demand for, take up and use of the services (and, in particular, the wholesale products) and network rests solely with NBPco.”

More specifically, rural areas remain open to competition from other private operators, including some that may be supported by the Government. 

The company is also explicitly responsible for any delays arising from issues such as planning permission, and cannot justify delays for reasons such as theft, protests or weather damage. Only war, terrorism, serious civil unrest, nuclear accidents and supersonic bangs are recognised as force majeure events.

Having learned from the Apple experience, the Government wrote in the contract that t any penalties arising from an adverse state aid decision will be placed in a “blocked account” until the dispute is resolved.

NBI had to pay a performance bond of an undisclosed amount to guarantee its promise to get the project started. If disputes erupt as it unfolds, a whole range of remedial plans and resolution mechanisms are in place, with provisions to ensure unaffected aspects of the project continue.

The minister has “step-in rights” to send in the Department’s own personnel or contractors and take over parts or all of the project temporarily if serious breaches of contract occur. 

A crucial part of the contract detailing how changes to existing commitments may be agreed, however, is – again – entirely redacted.

Transparency: more redactions to come

The contract’s clauses provide additional details on the conditions for information to be released. Under the Freedom of Information Act, it states that “information (including, without limitation, the subsidy payments) may be released”. Confidential information may also be given to the Oireachtas.

However, as illustrated with the wholesale redaction of the contract itself, NBI has the right to request that “commercially sensitive” information remains secret – if it is “acting reasonably”.

More worryingly, NBI is banned from talking to the media about the project unless it obtains “prior written consent of the minister”.