The decision by KPN, the Dutch telecommunications multinational, to sell its 21 per cent stake in Eircom is a grave development for both Eircom shareholders and the Irish economy.

It cannot be denied that this will come as a shock to most observers, not least because the hype and spin at the time of the share sale clearly indicated that KPN was a longterm strategic stakeholder.

In fact, the expectation was that the 14 per cent stake owned by Telia would, at least in part, be bought up by KPN. The share prospectus (page 27) stated: "KPN Telecom is not restricted from increasing its shareholding in the company to a level not exceeding 29.9 per cent"

Given that it held only 24 per cent it was obvious that provision was being intimated for KPN to buy up to 5.9 per cent of Telia's stakeholding. Telia informed Eireann Eircom that for regulatory reasons, arising out of the merger between Telia and Telenor AS, it was likely to dispose of its shares.

While it is true that there was a clause whereby KPN and Telia could sell their shares, I believe KPN has at least breached the spirit of this agreement by making this announcement before the six months have expired. Needless to say, no spin doctor or spokesperson on behalf of the Government, Ms O'Rourke or Eircom ever suggested that this option was likely to be availed of, or even highlighted its existence.

I believe those concerned may have been misled by KPN. Certainly, the public was not given the impression that the company would sell its stake so quickly. A heavy emphasis was continually made on the strategic benefits of having such a global telecoms giant as a partner. Many senior management posts were taken up by KPN Telia staff. The future of these key experts now seems unclear. Is it the case that with the rapid exit of the shareholder these executives will also go?

On October 14th the Department of Finance said it could not confirm the final price to be paid by KPN Telia for the shares in Eircom. Curiously, it said it would not be until February that the final amount would be agreed.

The background to this is that in December 1996 the then government sold 20 per cent of Telecom Eireann to KPN Telia for a £183 million down payment subject to a top-up payment in three years based on the growth in value of the company.

I checked the prospectus on this point and it states (page 26): "Comsource [KPN Telia] and the Ministers have agreed that such additional amount will be determined on January 31st, 2000, on the basis of the lower of the Offer Price or the average trading price of the shares for the three-month period ending on such date."

This means that for the present period of November, December and January the average quoted share price will confirm the amount the Exchequer is to receive, if this figure is lower than the initial issue price. This is truly bizarre. Is it the case that if KPN threatens to dump the shares on the market at this time and the price lowers, the taxpayer faces a considerable potential diminution of its windfall gain?

I will be tabling Dail questions as to the timeframe which the Government negotiated to allow this to happen.

Only last week top industrialists lobbied me on the issue of the great urgency for further investment and competition to keep pace with the rapid change in telecommunications technology. Ireland needs to avail quickly of additional broadband capacity so that video and data services can be provided through our communications network. We require extensive investment in fibre-optics cable and third-generation mobile telephony.

If KPN Telia's stakeholding is simply to be bought up by financial institutions and pension funds, one wonders whether Eircom will have the capacity to invest so heavily in the Irish market.

One of the fundamental reasons for the privatisation was to have access to more capital. It is vital that this 35 per cent stake is traded to another telecoms multinational operator such as BT, Deutsche Telekom, France Telecom or a US multinational. This is essential for access to capital and also to ensure that Eircom can avail of the international telecoms opportunities.

ALL of this will leave a very sour taste with the 500,000 retail purchasers of Eircom shares. For many ordinary citizens this was their first venture into buying shares. They are not speculators and were swayed by the slick marketing campaign and the ministerial assurances that this was a "good buy".

Profound long-term damage may have been done to future Initial Public Offers (IPOs) whereby people will be a lot more cautious in reading the fine print of the prospectus rather than glib rhetoric. Investors are unlikely to ever borrow again to purchase such State shares.

In summary, the key issues that arise from this debacle are:

The extent to which purchasers were adequately apprised of KPN's exact long-term commitment and strategy for their stakeholding in Eircom.

The level to which the taxpayer may not benefit from the share price clawback or top-up payment as agreed by the previous government in December 1996.

The capacity of Eircom to invest in Irish telecommunications infrastructure, particularly broadband capacity, so that Ireland can remain internationally competitive as a location for investment.

Whether key Eircom experts have been transferred from KPN Telia and the risk that they may now exit from Eircom along with their parent company.

Ms O'Rourke is open to criticism for her failure to copperfasten greater protection to shareholders and the company by insisting on a longer tenure for KPN to remain in the company.

She, Eircom and their advisers, who were paid over £40 million in fees and commission, stand accused of over-hyping the sale.

We thought that the botched board appointments and two subsequent resignations, as well as the recent systems calamity, was as bad as it could get. We can only hope that KPN and Telia, with their insider knowledge, do not know something that the public doesn't.

Ivan Yates TD is Fine Gael spokesman on public enterprise and transport