CIÉ is pursuing Esat BT for up to €8 million it says it is owed for letting the company use its railway lines for telecoms services.

The State transport company has invoked a clause in its 1998 contract signed with the telecoms firm Esat BT to bring the dispute over fees to arbitration.

CIÉ claims it is owed about €8 million in performance fees due under the deal, which enabled Esat BT to introduce a telecoms network along its railway lines.

The level of performance fees owed by Esat BT to CIÉ is decided by the amount of telecoms traffic carried by the fibre network along the railway lines.

The period directly under arbitration covers the year 2000 but it is expected to set a precedent for the years that have followed.

Esat BT's most recently filed accounts show the firm believes it should pay CIÉ just €150,000 fees for the year 2000. In contrast, CIÉ claims it is owed €1.6 million for 2000. It will also be claiming €8 million in fees up to the end of 2003, said a source.

Esat BT has rejected CIÉ's claim and agreed to take part in arbitration proceedings organised by the International Chambers of Commerce.

Oral hearings have already taken place on the issue and a ruling is expected shortly from the British-based arbitrator, Mr Robert Bruce.

The dispute over the level of performance fees due to CIÉ under the contract with Esat BT is just the latest in a series of problems with the deal.

As well as enabling Esat BT to create a national telecoms fibre network to rival Eircom, the deal was also supposed to create a new rail signalling system. But this system, which was originally forecast to cost about €15 million, was never completed.

Following a series of lengthy delays in the project and the collapse of a firm contracted to lay the signalling system, CIÉ decided to complete the project in-house. The final cost of the signalling project will now total at least €66 million and will not be completed until 2005.

The most important factor which caused the delays and cost overruns was a decision to allow Esat BT's fibre to be laid mechanically before the signalling system was installed.

Once Esat BT's fibre-optic line had been laid mechanically, Iarnród Éireann's subsequent signalling lines had to be laid by hand for safety reasons.

Several other significant issues came to light during a subsequent investigation into the contract and the cost overruns by an Oireachtas committee. These include the fact that Esat BT was allowed to start laying lines long before a proper contract had been signed. In addition, some of the people who later became involved in the company given the contract for both the Esat and rail signalling systems, Modern Networks Limited, moved to it from CIÉ itself.

A number of performance and penalty clauses were also removed from the contract before it was signed.

The Oireachtas Committee appointed to investigate the cost overruns on the CIÉ signalling system was prematurely halted following a High Court ruling on a similar Oireachtas examination of the Abbeylara shooting incident. The ruling constrained the scope of all Oireachtas inquiries.

An Esat BT spokeswoman said yesterday the firm was confident that a satisfactory outcome could be reached for both parties in the arbitration process. "Hopefully a settlement will be reached sooner rather than later," she said.

A CIÉ spokesman confirmed the arbitration proceedings were proceeding.

He said the rail signalling system would be completed by 2005 at a total cost of €66 million.