An Post expects to suffer losses of about €12 million on international mail operations this year, with domestic mail customers subsidising the losses.
The company's delivery of international mail is governed by EU agreements, which mean it cannot charge any more than 31 cents per international letter. The regulator, ComReg, yesterday instructed the company to re-negotiate these agreements by July 7th.
Last year the company lost €19 million because of the restrictions imposed by these international mail agreements.
ComReg said there could be no cross subsidisation "because we cannot expect the users of the domestic mail service to carry the excess costs associated with delivering incoming international mail". It is estimated that between two and three cents goes onto the price of each domestic letter to meet the losses on international mail.
ComReg said, if the losses continued, An Post's ability to fulfil its requirements could be put in jeopardy.
A statement from the regulator said: "As An Post is incurring heavy losses in this area, it is quite clear that it is costing An Post money to deliver international inbound mail, which means An Post is subsidising other European operators and their customers. This situation cannot be allowed to continue."
The chief executive of An Post Mr John Hynes (who retires this summer) said the vast majority of the losses arose in relation to mail from Britain. He said re-negotiating the agreements would be "challenging".
He said An Post was currently working off "below cost" tariffs because of the agreements and the EU Commission had found prima facie evidence to support this.
He said getting the agreements changed could be difficult because other postal operators, particularly the Royal Mail group, might object strongly.
Ms Etain Doyle, chairwoman of ComReg, said: "One of the main difficulties we have with this issue is that we are unable to work out exactly how the costs in international mail are applied because there is no transparency in the figures."
An Post is paid by postal operators to deliver mail to Irish addresses. More than 80 per cent of the payments for this are governed by agreements known as REIMS II (Remuneration for Exchange of International Mails).
ComReg said one of the core principles of Irish and European law in relation to such agreements was that "prices must be fixed in relation to the costs of processing and delivering incoming cross-border mail".
ComReg said, under REIMS II, it appeared the heavier the letter for delivery, the bigger the discount An Post was obliged to give other European postal operators.
"This is the market sector where An Post is making significant losses. As there is an open postal market in the delivery of such letters, other competitors will not be able to compete on equal terms," according to ComReg.
Meanwhile, interviews have been taking place to select Mr Hynes's successor as chief executive and an announcement is expected towards the end of the month.
