Allowing Esat Telecom to lay fibre-optic cables along the rail network has added millions to the cost of Iarnrod Eireann's new signalling system, an Oireachtas committee inquiry heard yesterday.

The committee also heard that the Department of Public Enterprise was in communication with the chairman of CIE, Mr John Lynch, concerning the salary of the chief executive, Mr Michael McDonnell. A new salary level may have been agreed by the former chairman, Mr Brian Joyce, before he resigned earlier this year, the committee heard. The department was not consulted.

Senior officials from the department told the committee Esat began laying lines at its own risk before any agreement was signed with Iarnrod Eireann. Eireann.

The laying of the lines by Esat was "at their own risk", The assistant secretary at the department, Mr John Fearan, told the Joint Committee on Public Enterprise and Transport that an agreement was signed between Esat and Iarnrod Eireann in July 1998 but that the work had already begun. It is understood the work began some time in 1997.

A contract for a rail signalling system was signed in July 1997 between Iarnrod Eireann and Modern Networks Ltd (MNL), the committee was told. MNL was also laying the Esat line.

The estimated cost of the signalling project in 1997 was just more than £16 million (#20.32 million). It could end up costing £40 million.

One reason for the higher cost was that once fibre-optic line had been laid mechanically, any subsequent line had to be laid by hand for safety reasons. Iarnrod Eireann was "gazumped" by Esat at the taxpayers' expense, Senator Shane Ross said. The chairman of the Joint Committee on Public Enterprise and Transport, Mr Sean Doherty, said the emerging picture was "extraordinary and bizarre".

The committee is to seek a copy of the contract between Iarnrod Eireann and MNL and a report by PricewaterhouseCoopers that was critical of that contract, before questioning senior CIE officers on Thursday.

A number of performance and penalty clauses were removed from the contract before it was signed, the committee heard. The project is stalled.

No payment has been made to MNL since October 1999. To mid-September 1999, £12.2 million had been paid out. The matter could yet end up in the courts, said Mr Brendan Tuohy, secretary general of the department.

Mr Fearan said that by October 1998 the department was aware of delays with the signalling project and by April 1999 was "seriously concerned" about the information it was receiving from CIE. It was not until November 1999 that the Minister for Public Enterprise, Ms O'Rourke, was told the taxpayer might be liable for the overruns.

During this period the department became aware that some people had left CIE and moved to MNL, the secretary general told Mr Emmet Stagg TD.

Referring to the delay in informing Ms O'Rourke, Mr Stagg said: "If I was the minister and you didn't tell me, I'd be looking for your hide."