The refusal of communications regulator ComReg to sanction a 12 cent increase (from 48 cent to 60 cent) for the cost of stamps for standard letters threatens the financial recovery of An Post and could lead to losses of €70 million by 2010, An Post's chief executive Donal Curtin has told the High Court.

The court yesterday granted leave to challenge the regulator's decision.

ComReg had effectively imposed a price freeze on the obligatory and loss-making letter post service of An Post, a company that is at risk and whose entire recovery plan is dependent on a price increase, Mr Curtin said. ComReg had put An Post "back on a financial knife-edge in the immediate future".

Much of the recovery plan, he added, was constrained by An Post's legal obligations in relation to workers' pay. The Labour Court had in November 2005 fixed the future wage costs of the company.

The refusal of the price increase also has "grave consequences" for the provision of postal services in the State, especially the standard letter post service, Mr Curtin said.

Although the intention of the relevant legislation was that charges for the letter service should be enough to cover costs, that was not the case, Mr Curtin said. The continuing decline in the number of letters sent, due to technological advances, exacerbated the problem and ComReg had failed to take account of this.

An affidavit from Mr Curtin was presented yesterday to Mr Justice Micheál Peart by Mr Gerard Hogan SC, when counsel sought leave to take a judicial review challenge aimed at overturning ComReg's decisions of December 20th last, refusing a letter stamp price increase and imposing various conditions and discounts in relation to any increases sanctioned for large packets and envelopes.

Mr Hogan said ComReg had failed to take into account An Post management's view of the grave position the company would be in without letter price increases and had instead sought to "micromanage" the company, although it had no such power.

ComReg had failed to recognise that the postal sector was unique, among regulated utilities, in that demand for its core product was in fundamental decline.

The judge said he was satisfied Mr Hogan had made out an arguable case and granted leave for the proceedings to be brought.

In his lengthy affidavit, Mr Curtin said ComReg's decisions failed to take into account the obligations on An Post, under the Postal and Telecommunications Services Act and under various EU directives, to ensure the company had sufficient revenue to enable it be properly financed and to avoid deficit financing.

ComReg had effectively ensured An Post was precluded from raising sufficient income to meet its statutory requirements, he added.

Mr Curtin said he had been appointed chief executive of An Post in June 2004. In August 2003, ComReg had sanctioned a letter stamp price increase from 41 cent to 48 cent. In May 2005, An Post proposed further increases in the cost of sending letters, flats and packets, but while ComReg had approved increases, on conditions, for envelopes and packets, it had refused to sanction an increase from 48 cent to 60 cent in stamps for letters.

Because the price increase was the most critical issue facing An Post, its board had, after serious consideration, decided to bring this court action, Mr Curtin said.

An Post had considered whether it could operate without such an increase and had concluded increased revenue from the "reserved" area - of letters, envelopes and packets - was essential to securing its viability.

An Post had recorded losses in 2001 and 2002 and its highest ever loss, €42.9 million, in 2003, he said. This was because standard postal prices had remained the same for over a decade, wage costs grew over the same period and volume fell.

A recovery plan was approved by the board and the then minister for communications, Dermot Ahern, in September 2003, which aimed to minimise losses in 2004, break even in 2005 and return a modest profit in 2006, so as to be able to continue a viable postal service. The recovery plan involved a major programme of job losses (600 jobs had been shed to date) and increased revenue generation, including price increases.

If An Post did not achieve an adequate price increase, it would lose at least €6 million this year, with losses of 5 million in 2008, rising to 30 million in 2009 and 70 million in 2010, he said.