Legal issues involving the EU Commission have delayed the renewal of An Post's crucial contract to make welfare payments with the Department of Social, Community and Family Affairs, its Minister, Mr Ahern, told the House.

The last contract ended in December 1999 and the Government had "previously decided" it should be extended for a further three years, 2000 to 2002 inclusive. However, "certain legal issues regarding the extension of the contract have been raised with the EU Commission by a third party."

The Commission had referred "these complaints" to the Department for its observations, which had been tendered. The Commission was currently reviewing the situation. In the meantime the Department and An Post had agreed the company would continue to provide these services on an interim basis. The Commission had been notified accordingly.

Mr Ahern was replying to a question from Ms Frances Fitzgerald (FG) who said "a group recently found that An Post's network was technically insolvent and will quickly become bankrupt without a change in funding".

Some 55 post offices had closed in recent months and elderly people had to travel "further and further" for post office services. The Department was the biggest client of An Post, with a contract worth £35 million in 1999.

An interdepartmental working group was "looking at recommendations" on how the network of post offices could be put on a sound business footing, Mr Ahern said.