Sunday 29 November 2009

Defective decision-making has left authority in the dry dock

The DDDA is saddled with net liabilities of €48.5m. But new chairwoman Niamh Brennan faces a tough fight to avoid having the body wound up by the Department of the Environment, writes Neil Callanan.

Niamh Brennan: 'I would say that we are one of the most realistic organisations in the country in the property business in terms of the values we are showing in the accounts'.

The purchase of a stake in the €412m Irish Glass Bottle site in Poolbeg has changed the Dublin Docklands Development Authority forever. Now valued at €50m, DDDA chairwoman Niamh Brennan said last week that it was "very, very unfortunate we bought at such a price".

Brennan, who was appointed earlier this year, said the authority believes that the property will go into Nama and "the state will have the asset". However, she believes that "at this point in the economic cycle that doesn't look like a fantastic thing but... that is a prime piece of land in the best possible part of Dublin which will be very significantly attractive to many people and the state will have it. What looks like a very sorry story at the moment, I think if you take a medium- to long-term view it will turn out to be much better than it might appear at the moment."

Brennan was speaking after the release of the authority's accounts and annual report. It shows a massive turnaround in the authority's position, with a deficit in its consolidated income and expenditure account, which includes Becbay, of €213m. Its consolidated balance sheet shows that it has net liabilities of €48.5m.

So why should the DDDA be allowed continue when it has made a number of poor decisions (see story below)? Why shouldn't it just be subsumed into Dublin City Council, with its social-regeneration functions remaining independent?

"The problems that the authority faces will be the same problems whether we subsume it into another agency or not. It's not going to get rid of the problems," Brennan said. "I believe the authority, the board and the current management are the best group of people to sort out the problems, take the tough decisions and get the authority back onto an even keel – even though that even keel may be for a little time a bare-bones even keel – so that, in due course, when the market begins to pick up, it is in a position to finish the project, because the project isn't finished.

She wouldn't reveal the amount the DDDA has had to pay towards consultants' fees for Becbay "for reasons of confidentiality".

Brennan said the DDDA was "working very hard on housing sales" in order to generate turnover for the authority and was "also focusing on the cost sides because we have to get the authority back to break even". But housing starts are down and this will impact on its future income. The DDDA is due to receive a final payment on a site, which will boost its income, but it would not say last week who that payment was due from and what site it related to, saying it was commercially sensitive.

Currently there are just under 40 employed at the authority, where once there were more than 60. By the end of next year it will be back to 26, the same level as four-and-a-half years ago. It will also put its current offices on the market, for sale or to let, to generate income and return to its former offices on the north quays.

The accounts show that the average salary and number of employees at the authority increased in 2008 despite the collapse of the property market. "I suppose at that particular point in time, there was a range of projects which are still ongoing but since then we have cut back," said Gerry Kelly, the authority's interim chief executive officer. "The new business model that we have in place is to cut back on projects and look at the 'must haves' rather than the 'nice to haves', and that will be greatly reflected in our 2009 figures. I would say that by the end of 2010 we will have halved our salaries figure."

That said, there have been no pay cuts so far, aside from wider public-sector levies, although Kelly said that there would be "a drastic restructuring on both the management and the staffing side of the authority". Pay cuts will now be looked at "for everybody". Kelly meanwhile has been asked to continue in his acting CEO position until March.

"The reason why the board came to these decisions was because the authority is going through a great deal of stress. Its position is very fragile, we need institutional memory," said Brennan.

The upshot of all the cuts will be that the DDDA's deficit this year will be less than €10m, down from €27m last year.

The DDDA aggressively wrote down its property assets to reflect the slump in development land. The Jones Oil site, which is the most recent addition to the authority's land bank, suffered a "massive" writedown because the authority was locked into a compulsory purchase process. Other sites had their values written down by a similar amount.

"We have written down everything about as prudently as you could possibly have... we have written them down to absolutely realistic values. I would say that we are one of the most realistic organisations in the country in the property business in terms of the values we are showing in the accounts," said Brennan.

The authority's board and executive had an expenses bill of more than €625,000 between 2005 and 2008. Asked if some of them were over the top, Brennan said that, in her opinion, "one of the weaknesses found in the financial review was that whereas we had good internal processes for tracking costs, we did not implement those processes as robustly as we should have. Cost control was not a feature of the authority. It is now, it has to be, but I do think, looking at some of the expenditure, that it was over the top."

Brennan hasn't asked for extra board members, saying the level of effort put forward by the current members was "beyond anything I have ever seen by any board before".

The next step in deciding the DDDA's future will come from the corporate governance report which will examine the planning and financial side of the authority; this will be sent to John Gormley's Department of the Environment.

Asked about Fine Gael TD Phil Hogan's call for the Comptroller & Auditor General to compile a report on the DDDA, Brennan said its own review was up to that standard. Gormley will have tough decisions ahead.

Sunday Tribune

No comments: