Project Eagle sale highlights downside of ‘commercial sensitivity’ secrecy

First Published in the Sunday Business Post on 18 September 2016

Lesson one to circumvent public transparency – insert a commercial sensitivity clause into your organisation’s raison d’être

What does the Nama sale of Project Eagle have in common with public-private partnerships operated by the National Treasury Management Agency (NTMA) and the winding down of the Irish Bank Resolution Corporation?

All three entities involve the expenditure of extraordinary sums of public money. By definition, they operate at the coalface between public and private sectors. They are the subject of extensive scrutiny. Crucially, Nama, NTMA and IBRC involve decision-making where there is a “winner” and a “loser”.

The winner is defined as the individual or company which makes the best bid for a Nama asset, tenders the most successful PPP (Public-Private Partnership) proposal or successfully buys IBRC loans at the best rate.

The decision-making process which determines the “winner” does not, for the most part, come under Freedom of Information legislation. The pretext of commercial sensitivity precludes against a comprehensive transparent regime.

We will get to exact examples of this shortly.

There are sound reasons for commercial sensitivity to be invoked. It is not in the public interest to disclose the valuation of assets, tenders or liabilities before a sale or award is granted. If potential buyers knew what the intended market value of an asset was, the state may not get the best price. It is counterproductive for the state to show its hand to the marketplace.

The same principle applies during a card game. Why would one player reveal their cards to a competitor, thereby exposing their strategy and ultimate game plan?

The government has to ride two horses at the one time. In order to satisfy demands for public accountability, a transparent process of decision-making must be implemented, particularly given the sums of public money involved. This public interest requirement must be reconciled with the public interest obligation of achieving the best financial return possible for the state.

A middle ground between these two competing duties can be achieved.

Every year, state papers and records are released. The public can access confidential documents relating to sensitive and politically charged events. “The annual release of records is a cornerstone in Ireland’s democratic process and supports accountability and transparency across the public sector,” minister Heather Humphreys said at last year’s launch.

Why can’t this principle be applied to the release of commercially sensitive information relating to the alphabet soup of Nama, NTMA and IBRC?

By definition, information is not commercially sensitive forever. The rationale for confidentiality will not apply after a period of time because the dynamics of the market and the price of the asset will have changed.

A commitment to publish all information after a determined time would promote public trust in the institutions and neutralise perceptions of improper influence. Such perceptions may well be unfair and unwarranted but can thrive in an information vacuum.

Minister Paschal Donohoe has sought submissions from the public as part of the Department of Public Expenditure and Reform’s National Action Plan on Open Government Partnership.

“Transparency Clauses in Large Public Contracts” is one of the areas on which his Department has specifically sought proposals.

Nama, NTMA and IBRC are about as large as it gets. “What would be likely to work in making public contractors more accountable?” Donohoe’s department asks. Piercing the veil of commercial sensitivity that shields the internal decision-making processes within these mammoth Irish institutions is the answer.

Here are examples of how the shield of commercial sensitivity prevents public transparency.

1. Project Eagle was the biggest property transaction in the history of Northern Ireland. Nama described the portfolio with a par value of £4.5 billion, as the “largest single transaction” it had completed to date. The Nama press release that announced the sale made it crystal clear that the public had no right to transparency. “The terms of the transaction are commercially sensitive and are not being disclosed,” the statement said.

2. PPPs are overseen by the NTMA. The state regularly makes the decision on whether to use private or public finance to build schools or other infrastructure projects. This decision is arrived at by measuring the Public Sector Benchmark (PSB). The PSB is a detailed budget and risk-adjusted costing over the lifetime of the project. The PSB, which therefore determines the direction of substantial exchequer expenditure, is not disclosed for commercially sensitive reasons. C&AG reports have raised concerns that PPPs do not have the same degree of oversight as other public sector projects.

3. Mick Wallace TD has repeatedly asked the Minister for Finance to provide an itemised list of all disposals made by IBRC, the original value of the liabilities and loans, the amount realised and the way the disposal was made. “I am advised that this information is considered commercially sensitive and therefore will not be releasing the information” is the stock response.

Incidentally, back in 2009 when Nama was first established, the first question on its “frequently asked questions” page was: “Will there be transparency in relation to loans transferred to Nama?” The answer – “Information regarding its exposures and their size is commercially sensitive so it will not be appropriate to disclose every detail.”

That question is no longer on the Nama website. The public no longer queries the pretext of commercially sensitive as a barrier to transparency. We have become conditioned to accept it.

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