Eircom warned the Government that a flotation price of €3.90 (£3.07) would be too high just weeks before the initial public offering last July. Despite representations from the then Telecom Eireann to senior officials in the Department of Public Enterprise, a Cabinet sub-committee went ahead to set the flotation price at €3.90.

ABN Amro, the advisers to Eircom, believed that a range of prices then being put forward by the banks acting for the Government was at too great a premium to other comparable European telecom stocks. "We advised them (the Government) to price the offering as low as was feasible, at the very bottom of the range indicated in the prospectus of €3.35 to €4.15," said a senior Eircom source last night. He pointed out that the range in the prospectus was only a guide and the Government could have priced it lower if they wanted.

"The company was being priced at a premium to a sector that was itself at a premium to the market," he added. In the end, Eircom's advice was ignored and the price was struck at €3.90, more or less halfway between the two values put forward by the Government advisers. AIB had recommended a price of €3.73, while Merrill Lynch had pushed for a price of €4.26.

The two banks received fees of more than £58 million which were linked to the success of the offering. The total cost of the flotation were in excess of £73 million or more than 2.2 per cent of the £3.3 billion raised. Speaking at the announcement of the company's results yesterday, Eircom's chief executive, Mr Alfie Kane, said the company had accepted the price set by the Government even though it ran contrary to its own advice. The price was set on the day before the flotation and communicated to the company only hours before it was made public. "The shareholder in the company was the Government and the board had a duty to act in their interest," he said. "As I look back at the decision-making process it is fair to say that it was a decision on the high side which is not very far from saying that you got it wrong," he said.

"The advice that we were given as a company was that it should have been priced lower," he added

Public Enterprise Minister Ms O'Rourke defended the Government decision to set the price at €3.90. She said that range of prices listed in the prospectus was agreed by the board. She confirmed that the final price was not discussed with the company. "It was pitched halfway between the two sets of advice. It was the Government's job to set the price. We had to get a good price for the shares, as well as encourage people to buy."

The Minister pointed out that she never recommended that people should buy shares at that price. "I did say that I would like to see people owning the shares," she said.

Mr Ivan Yates, the Fine Gael spokesman on public enterprise, accused Ms O'Rourke and the Government of duping the 500,000 members of the public who took part in the flotation. "Minister O'Rourke should apologise for the Government's greed at the high price that was set. It should be remembered that this IPO involved applicants being required to register for shares before the price was set."

Speaking in the Dail last night, Ms O'Rourke said the price was set on the basis of what the public was prepared to pay. She pointed out that in the immediate aftermath of the public offering there was criticism that it had been priced to low. Responding to Mr Yates, she said the Fine Gael spokesman had said at the time that it was not a risky investment. She said Mr Yates had called it "a sure bet". The Minister echoed the Toaiseach's remarks earlier in the day when he said that the share had only traded below its launch price for 35 of the 230 days since the flotation.