Plunging into the depths
ONE of the most bitter, personalised and expensive corporate fiascoes in Irish sport will be picked apart in a most public forum this morning.
It will all centre on questioning about the collapse, collapse and collapse again of the dream to get a private sector partner to build, run and effectively pay for the National Aquatic Centre in Abbotstown.
Wrapped into this will be the money wasted on the bid to transform the grasslands in west Dublin into an acropolis among sports stadia and the recent revelation that €43m was spent on developing the masterplan for a campus now substantially shelved.
In particular, civil servants from four state bodies will have to answer to the Public Accounts Committee for the loss of €10m in VAT expected to be billed on a private business initially awarded the right to construct operate the aquatic centre for 30 years.
This is on top of a series of mis-steps which inflated the original estimate for the swimming pool section of the project by more than €85m.
Watching in the wings today will be a Kerry-based developer who was once heralded as the “white knight” that saved the aquatic centre from the brink of never happening.
But since that moment 10 years ago, he has become its most vociferous and litigious adversary who exposed a series of extraordinary miscalculations underpinning the campus plans.
John Moriarty, an engineer based in Kerry, is the force behind Dublin Waterworld. He is the man on whose assets the contract to build the National Aquatic Centre was guaranteed.
Mr Moriarty is also the person who has used every avenue of legal discovery and the Freedom of Information Act to build a dossier of documents to challenge the promoters of the NAC and the civil servants driving it.
Many of these papers have been submitted to the Public Accounts Committee over the last two years, including solicitors’ letters and extensive valuation reports.
In 2010, Mr Moriarty’s company defeated Campus Stadium Ireland Development Ltd in the Supreme Court battle over the €10m VAT bill. He is now preparing a potentially devastating damages’ case against the State for the effect the dispute had on his reputation and his earning potential.
This is happening seven years after Dublin Waterworld was threatened by CSID that it would be forcibly wound up if it did not pay the VAT charge.
Mr Moriarty’s solicitors have since secured a letter confirming this threat had been withdrawn.
The same body, CSID, also got the High Court to evict Dublin Waterworld from the centre for a series of alleged breaches of the lease. These included the transfer by Dublin Waterworld of the beneficial ownership of the lease to a Limerick builder, Pat Mulcair, that allowed him access generous capital tax exemptions.
CSID said it never approved or condoned such an arrangement.
The outcome of the lengthy yet ongoing dispute between Dublin Waterworld and CSID has resulted in an incredible additional cost getting heaped on to the already over-budget NAC.
The debacle began with the botched selection process to pick a consortium to build, manage and maintain the NAC until 2033. The fall-out has fostered two (and almost three) Supreme Court cases, a High Court challenge, arbitration hearings, a damning investigation by an attorney general and an adverse ruling by the information commissioner.
The unsuccessful bidder, DIAL International, successfully sued CSID for €2.5m because of flaws in the competition it ran. This is apart from the legal challenges of Dublin Waterworld.
Even worse, the project has burdened taxpayers with more than €85m in additional costs compared to the original budget envisaged for it at the outset.
The overruns are still €50m above the revised budget agreed once all the early issues and wrangling had been ironed out.
The fallout from the maligned NAC is now as tangled as a bedraggled knitter’s basket, with threads of allegation and animosity wrapped up in a enormously expensive outcome for the public purse.
This morning, the Public Accounts Committee will return to the issue in a bid to unravel the knots and tease out the truth.
For the first time it will have before it representatives of the Department of Sport, the National Sports Campus Development Authority, the Valuation Office and the Revenue Commissioners.
In November, after preliminary questioning, committee chairman John McGuinness said the answers from the Department of Transport, Tourism and Sport’s secretary general, Tom O’Mahony, were unsatisfactory. And the committee was unimpressed by the costly legal strategies which Campus Stadium Ireland Development employed.
Mr McGuinness also levelled criticism at the costly consultants it relied on to develop its plans.
“[CSID] surrounded itself with highly-paid advisors, and in the proposals that were drawn up for the competition to design and build the aquatic centre, these advisors projected that the centre would make a profit of between €500,000 and €2m per annum.
“The reality is that the Aquatic Centre requires a subsidy of €1m every year to cover its running costs. These advisors have all left the stage having got well paid for their efforts and the State has no recourse back to them for the poor advice that was given,” Mr McGuinness said.
Mr McGuinness’s committee is particularly concerned about the most recent blunder which exposed CSID and its successor, the National Sports Campus Development Authority, to the unexpected VAT bill.
It believed it could pass this on to its original private sector partner, Dublin Waterworld, despite being advised against enforcing this cost by the offices of the Attorney General and Comptroller and Auditor General.
The legal arguments at the heart of the VAT case are complicated.
However, in essence, the dispute boiled down to a gross overvaluation of the potential earning power of the centre.
Had the company with the lease been able to earn more from its business than it cost to build the centre then it would have had to pay the VAT bill. This was because of a 2002 tax law designed to ensure the party that benefited most from a leased property paid the VAT and could not dodge the charge.
But, crucially, the law said VAT on leases would only apply if they were worth more than the “economic value” of the building.
CSID originally held that the value of the lease was €75m. But on the open market, its value was in fact determined at €35m. The value of the lease was considered nowhere near enough to satisfy the Revenue Commissioner’s economic value watermark.
Mr Moriarty has asked PAC to seek explanations for the manner in which this over-priced valuation was arrived at by the Valuation Office and independent consultants from PriceWaterhouseCoopers.
The members of the committee should be well versed on the issues at stake and have already issued a preliminary statement.
For the past two years, it has received numerous items of correspondence from Mr Moriarty revealing the intimate details of a venomous legal battle.
Mr Moriarty’s own forceful narrative and appeals to the Public Accounts Committee to investigate the matter have been met with equally vehement responses from the Department of Sport and CSID/NSCDA.
In a letter to the committee a month ago, Mr Moriarty accepted the Revenue Commissioners could not discuss individual cases.
However, he waived his right to privacy and asked for the CSID/NSCDA to do the same.
“The position that CSID adopted was both unique and incorrect and there is no professional tax advisor that we are aware of who supports CSID’s position,” he said.
Mr Moriarty has alleged that his bid to glean further documents from CSID/NSCDA relating to the original valuation have been frustrated by “a concerted effort being made to conceal the background to CSID’s original request to the Valuation Office (in relation to VAT).”
The Department of Sport fought with vigour to avoid having this issue played out at the PAC.
In July 2010, the then secretary general with responsibility for sport, Con Haugh, called into question Mr Moriarty’s character and asked the committee not to allow for a full revisiting of the matters already dealt with in court.
It said the advice by the Attorney General and C&AG in 2004, not to proceed with the VAT case, was taken out of context.
And when it decided in go to court to evict Dublin Waterworld from the lease, the VAT issue was allowed as one of the pillars of its case.
Ten years ago the national press was captivated by the unravelling mess which had underpinned the process to decide who would build and run the NAC.
The committee managing the centre had already been burned after selecting a shell company with virtually no assets as the preferred bidder to build the showpiece stadium.
Then, in a frantic effort to minimise the damage, it granted the contract to build and run the centre to a consortium which could only offer a small personal guarantee from Anglo Irish Bank.
This was all done in an effort to have fulfil Taoiseach Bertie Ahern’s dream of having a new swimming arena ready for Ireland’s hosting of the 2003 Special Olympics.
The centre opened in time. But the rush to reach this target left a faulty building, an inadequate management structure, an unsustainable business model and a litany of expensive and yet to be resolved legal disputes.
The Department of Sport and the managers of the national sports campus still believe they were right to fight for the right to claim €10.2m worth of VAT from the developers of the National Aquatic Centre.
Their arguments are based on the contention that the tax law was unclear and could have been interpreted in various ways.
This is despite the Campus and Stadium Ireland Development (CSID) being advised in 2002 to withhold a key valuation that did not suit the case.
The department and CSID said 2001 guidelines were more ambiguous than suggested in the interpretation of the VAT law. Moreover, it said the Supreme Court judgment showed the Revenue Commissioner’s take on the issue to have been wrong.
The department said the view of the court was that the original arbitrator had made a number of fundamental errors in law.
In his pre-Christmas appearance before the Dáil Public Accounts Committee, the secretary general of the Department of Sport, Tom O’Mahony, said it took the case on the strength of advice from the Revenue and the Department of Finance.
Furthermore, he said the Attorney General reversed his 2004 advice, which said not to pursue the VAT case, and he suggested Revenue also favoured such an action.
And he said the Attorney General’s advice from 2004 should not have been released under the Freedom of Information Act and it only happened because of a mistake.
Leading roles in today’s theatrics:
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Since last year’s re-jig of the Government departments, the secretary general with responsibility for sport is Tom O’Mahony.
In November, he sought to explain the rationale for the legal challenges pursued by the campus authorities and the enormous investment in the dream-turned-nightmare at the Abbotstown centre.
In both its present and previous guise, the Department of Sport has stood resolutely behind the quangos appointed to manage the process.
Late last year, Mr O’Mahony defended the legal strategies employed and said the department had been advised to take the legalistic approach.
There has been considerable crossover between those involved in driving the project and the people responsible for the department.
For instance, the last secretary general with responsibility for the campus, Con Haugh, was previously in charge of Campus Stadium Ireland Development.
In November, Mr O’Mahony revealed that separately more than €43m was spent on a master plan for the site.
This organisation already has its head on the chopping block since the decision was made to merge non-essential quangos.
The 12 directors appointed to it will remain until it is taken in by the Sports Council in 2013.
Its original head, Paddy Teahon, was forced to quit in 2002 following a damning report of the then attorney general into the contract for the National Aquatic Centre.
CSID/NSCDA has many questions to answer. Not alone did it pursue a series of misguided legal cases, it did so while it was never a recognised legal entity for tax purposes. This was not realised until after the 2010 Supreme Court case.
This all happened while it was relying heavily on the advice and management of external consultants. The bill for these services ran to more than €13m — €7m for professional services, €3m on executive assistance and €2.3m on project managers.
It has been left running a centre, which was supposed to generate profits of up to €2m, at a loss to the State of €1.3m per annum.
Altogether since 2000, it has spent €119m on the campus.
The office, which is subject of separate criticism by the Comptroller and Auditor General, played a small but key part in the botched VAT case.
It advised CSID on the value of the lease and provided a figure so low, but ultimately accurate, that the Supreme Court labelled it “devastating”. However, the former operators of the NAC have asked the Public Accounts Committee to establish what documents were submitted to the office.
The tax office has written to the Public Accounts Committee to effectively say it cannot discuss individual cases because of confidentiality concerns.
The department has, in recent years, begun to rely heavily on the argument that it was adhering to Department of Finance and Revenue Commissioner’s advice when it kept pursuing the VAT case to the Supreme Court. This was despite being called off it by the Attorney General and Comptroller and Auditor General.
However, Revenue previously indicated it was not aware of the specifics of the case until after its outcome. The Revenue has been blamed, by the department, for providing an incorrect interpretation of the 2002 VAT law. Dublin Waterworld has told the PAC it is willing to waive confidentiality clauses if the department and CSID/NSCDA do likewise.
Revenue will be asked to establish if or when it gave a view on the €10.2m VAT case.
John Moriarty, the man behind Dublin Waterworld, drove the Supreme Court case that led to the €10.2m VAT bill falling back on the State.
He has supplied an enormous amount of detail to the Public Accounts Committee during the course of the last two years.
DIAL international, the unsuccessful bidder for the original building/operating contract, received compensation of €2.5m after it took a High Court case.
It has written to the PAC ahead of today’s meeting to alert it to issues unconnected to the VAT issue but costly to taxpayers.
