Somewhere in the fine print of most tender documents there is a line that says âBidders are responsible for their own tender costsâ. This is a standard clause, which means that the opportunity costs of the involvement must be borne by the claimant.
Similar warnings are included in documentation for the government’s 2.9 billion euros National Plan for Broadband (NBP), the most valuable contract ever awarded by the state.
The final bid solicitation document for the project in September 2018 states: âEach party will be responsible for its own costs and expenses arising out of or in connection with its participation in this procurement. “
Yet a few months after the contract was awarded in November 2019, successful bidder Granahan McCourt, the US investment firm founded by tech billionaire David McCourt, received â¬ 33 million from the process to cover its call costs. offers.
According to the 2020 accounts of Metalallah Ltd – the parent company of National Broadband Ireland (NBI), the vehicle set up to deliver the project – it paid â¬ 32.73 million to NBI Bidco LLC, a US company directly controlled by McCourt.
The payment “concerned the costs incurred by the investors of the group over a period of several years within the framework of the call for tenders, the negotiation and the completion of the 25-year project”, specify the accounts. Industry insiders have expressed surprise that McCourt is seeking and being facilitated – under the terms of the contract – to receive such payment and at such an early stage in the process.
The Ministry of Communication, which is overseeing the project, said: âNo government grants have been used to cover these costs, according to procurement documents.
âThe costs of the offer will ultimately be recovered by investors from the expected returns generated by the project over the next 25 years,â he added.
The shareholders of Metallah, which besides Granahan McCourt include the American hedge fund Oak Hill, have pledged to release 175 million euros of equity for the project.
Metallah received the first 100 million euros in 2020, including 98 million euros in loans and 2 million euros in cash.
It is not uncommon for investors to use debt along with equity to finance infrastructure projects, but the ratio of debt to equity is extremely imbalanced. The same is true of the interest rate attached to loans. Last year, Metalla paid 11.8 million euros in interest charges on the loans, which equates to a rate of 12%.
An industry expert said the rate charged was similar to what you would attach to a junk bond, which are known for their exorbitant fees.
The Communications Ministry was forced last week to clarify who actually owned and controlled NBI given the complex ownership structure behind it.
It could have something to do with the fact that the contract was won by a group of financiers, including a US hedge fund, and not by a utility or telco, the target the government is targeting.
The latter can also explain why operationally the NBI has been so slow to deliver. In October of this year – 22 months after its deployment – it only managed to build 17,000 homes and businesses out of the 542,000 planned for coverage.
As a result, it also lowered its target at the end of January of the number of premises “passed” through the network from 115,000 to 60,000. From any point of view, and even taking into account the disruption of the Covid, It’s not good.
The winning bidder of the Northern Ireland rural broadband project, Fibrus, which began its deployment much later – in October 2020 – has exceeded 16,000 households.
The North program provides a state grant of 165 million pounds sterling (184 million euros) to connect 76,000 households, which amounts – on a unit basis – to 2,500 euros per household. The subsidy of 2.9 billion euros (for 542,000 homes) in the Republic represents more than double, or about 5,300 euros per home.
Part of the reason for the cost disparity is the Republic’s intricate tapestry of one-off housing, which is unmatched to anywhere else in Europe, even in the North. This makes the cost of connecting these homes very expensive.
The North also chose to omit 0.5 percent of the most distant homes for cost reasons. In contrast, the Irish government insists on connecting the entire building stock not covered by commercial operators, from isolated cottages to holiday homes.
Another reason for the variance is the cost of using existing infrastructure. Poles and conduits from the former state monopoly Eir are more expensive to rent than those from BT.
That said, GNP is unlikely to use the full â¬ 2.9 billion grant, which includes a VAT of â¬ 355 million and a reserve of â¬ 545 million subject to drawing conditions. strict. In addition, less expensive wireless technology is likely to be deployed for more remote units.
Another reason for the high cost south of the border relates to the gap-funded model and the procurement process advised by KPMG consultants (the company was paid 11 million euros for the advice) which did not left only one bidder in the race and the government actually over a period barrel on the price.
The 175 million euros in equity capital put in place by the successful bidders are low in the context of a 2.9 billion euros subsidy; the potential income that could result from the project; and in the context of the bidders, not the state, owners of the infrastructure after the contract expires in 25 years.
From the start, the government was desperate to avoid a two-type Moriarty debacle with the allocation of another large telecommunications asset mired in financial and political controversy. This hope is quickly fading.