Adjournment Debate. - Future of Irish Steel.

Wednesday, 6 December 1989

Dáil Éireann Debate
Vol. 394 No. 2

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An Ceann Comhairle: Information on Seán Treacy  Zoom on Seán Treacy  Deputy Gerry O'Sullivan and other Deputies gave me notice of their intention to raise on the Adjournment the subject matter as to the serious position regarding the takeover of Irish Steel.

Mr. G. O'Sullivan: Information on Gerry O'Sullivan  Zoom on Gerry O'Sullivan  I would be grateful if I could share my time with Deputy Toddy O'Sullivan.

An Ceann Comhairle: Information on Seán Treacy  Zoom on Seán Treacy  Is that agreed? Agreed.

Mr. G. O'Sullivan: Information on Gerry O'Sullivan  Zoom on Gerry O'Sullivan  I am grateful for the opportunity to raise on the Adjournment the urgency of the future of Irish Steel. Grave doubts have been expressed by the unions and the workforce regarding the security of the 640 jobs directly involved and the other 500 jobs dependent on the steel plant. The loss of such a huge number of jobs in the greater Cork area will have a devastating effect not alone on the city and county but on the country as a whole. Since 1985 workers and management have made a magnificant effort in turning Irish Steel around. It is vital now that the Minister give a guarantee that any deal by the German Korf KG Company will specifically copperfasten the future of the plant. The proposed £60 million deal has now been scrapped because the banks could [648] not guarantee the money and the workers are now completely in the dark about any new deal which might have been drafted by the Minister and the German interests. The Minister has a duty to spell out in the House tonight what this new deal involves for the workers and the future of Irish Steel particularly in view of the reply given to the Dáil this week by Deputy Des O'Malley, Minister for Industry and Commerce when he said that the reason for the delay was that the purchaser had not met a number of his contractual obligations. Are the Minister and the Government now saying that these contractual obligations have been met and workers who were guaranteed protection for seven years under the old agreement have nothing to fear under the new agreement? The workers and management had responded positively to the proposed original deal. There is an onus on the Minister to outline what action he has taken and what guarantees he has received. Fears are being expressed by responsible trade union negotiators, responsible shop stewards and by a responsible workforce who now view the Irish Steel deal with a certain amount of apprehension and suspicion. It was suspected that Irish Steel would be privatised so that the assets could be sold off. The events of the last two days have done nothing to dispel those fears. The Minister tonight should once and for all clear the air and make a statement to allay the fears of the hundreds of workers and their families who depend on Irish Steel for their livelihoods.

Mr. T. O'Sullivan: Information on Toddy O'Sullivan  Zoom on Toddy O'Sullivan  I thank Deputy Gerry O'Sullivan for sharing his time with me. Up to the end of 1987 Irish Steel received financial backing by way of shareholders' share capital to the amount of £125 million. They received Government loans of £18 million, Government grants of £2.7 million and guarantees over loans and leasing facilities and bank advances totalling £20.1 million. The [649] extent of this investment has my full support, as I felt that if this country was ever to enlarge its heavy industrial base Irish Steel would have to play a central role in its development.

Since 1985, when EC rules prohibited further State aid to European steel manufacturers, Irish Steel met the challenge head on. There were considerable sacrifices on the part of the workforce. Since the restructuring of Irish Steel in 1985 one-fifth of the workforce has been made redundant. The remaining workers had to accept a wage freeze, the first pay freeze ever in the Irish public sector. This is something the chief executive officer of Irish Steel, Mr. Liam Coughlan, acknowledged when he said that no other public sector company introduced that kind of draconian measure. Adding to the problems of the company was the cost of energy. The Irish Steel furnace is the largest single user of electricity in the ESB national grid. The ESB bills amount to on average £6 million annually, which is approximately £1 million higher than the average cost to other European plants. In 1987 when the Minister, Deputy Albert Reynolds, stated that there was no question of further Government financing of losses for Irish Steel, despite the warning by the Minister, the company chairman, Mr. Hugh O'Connor, said that at that time the objectives of the company to return to profitability in a period of three to four years was on line.

The fortunes of Irish Steel must be linked to the fortunes of the construction industry. When things are looking brighter for the Irish construction industry it is not very considerate to taxpayers to hand over Irish Steel into private hands, particularly when the taxpayers carried it through difficult years. More buoyancy in the construction industry will certainly bring more home-based trade for Irish Steel.

Can one blame the workers now for expressing their fears to their trade unions about their future? Having made [650] sacrifices to ensure that the company would survive they are now told that the original £6 million escrow proposals are being stopped and that the latest proposals are in no way adequate to ensure the survival in Irish Steel of 640 jobs. As late as 26 October this year, the Irish Congress of Trade Unions had a meeting with representatives of Korf and posed some very important questions to them regarding the future of the jobs at Irish Steel. The unions requested sight of the feasibility business study. They were told that the business plan was of a highly confidential nature but that an engineer would be made available to the unions to discuss the matter. I would like to know if this offer is still open under the new plan. The union also put to the representatives of this company the question of whether all existing agreements would be honoured and continued. They were told that agreements reached would be honoured. I would like to know if this is still the case.

The company were then asked specifically if the existing workforce of 640 to 650 workers would be guaranteed for seven years. A guarantee was given that not alone would the workforce continue at that level but that it would be increased to 720 when the company was up and running. The unions then asked if the job guarantees would be under-written and it was explained at some length that the best guarantee for the future of Irish Steel would be the infusion of new investment and that as the investment came from Korf no futher commitment would be needed. In view of the drastic reduction in the amount of the investment now proposed, do these guarantees stand? The question of the continuity of service and whether it would be specifically guaranteed was also raised. That guarantee was given. The unions asked about the question of training in the company. At that time, as late as 26 October, there was a guarantee given that training would continue.

Is the Minister satisfied that this very [651] valuable asset is not going to be sold for a peppercorn, as the new agreement would now suggest? The lives of too many people depend on it. There are 640 people directly involved and there are the ancillary industries in the greater Cork area which are dependent on activity in this very valuable asset. Is it to be sold for something far short of what the country and its taxpayers' have invested in it?

Mr. Allen: Information on Bernard Allen  Zoom on Bernard Allen  As one of the Deputies who raised this this morning on the Order of Business, I would like to add my voice to the opinions put forward by the two Labour representatives from Cork.

Irish Steel is the backbone of the Cork industrial economy. The workforce there have shown dedication and flexibility in changing times and circumstances in recent years. I appeal to the Minister tonight to eliminate any uncertainty that exists at present. The morale and the spirit of the workforce will be destroyed if the clouds of uncertainty over Irish Steel are not dispersed immediately. The unions, the workforce and the management have shown commitment and dedication in the last number of years. For the sake of everybody, the workforce and their families, for the sake of the economic future of Cork, I appeal to the Minister to eliminate the air of uncertainty and give us some encouraging news here this evening.

Mr. Dennehy: Information on John Dennehy  Zoom on John Dennehy  Would it be in order for me to add my voice to the concern expressed?

An Ceann Comhairle: Information on Seán Treacy  Zoom on Seán Treacy  I want to facilitate as many Deputies as possible but the time has now come to call the Minister. Perhaps the Minister will concede a minute or two of his time.

Mr. Dennehy: Information on John Dennehy  Zoom on John Dennehy  Having worked in the company for several years I am in a different [652] situation from most others. I would have more knowledge of the company. I would like to see the original agreement adhered to. I am au fait with what was proposed and would support it totally, as would the workforce. Our three major concerns were allowed to die in the 1984-85 period. I refer to Verolme Dockyard, Dunlops and Fords. We would ask the Minister to ensure that Irish Steel does not suffer a similar fate.

Mr. Smith: Information on Michael Smith  Zoom on Michael Smith  Irish Steel, based at Haulbowline, County Cork, employ approximately 640 people in what is by international standards a small mill. They produce approximately 280,000 tonnes of mainly structural sections which generated a turnover in the year ended 30 June 1989 of £80 million.

Until this year, however, profitability had been a persistent problem, with sizeable losses being the general rule. The primary reason for the upturn in the year ended 30 June 1989 was the exceptionally high demand for structural steel throughout Europe. The £80 million turnover achieved in 1988-89 represented an increase of 40 per cent on their 1987-88 turnover of £58 million. It is not, however, possible to predict for how long, or if, demand will remain at present levels and already there are some signs of softening in the market. Indeed, the product range produced by Irish Steel Limited is in the commodity area and is particularly susceptible to price and volume movements arising from changes in the level of overall demand.

Over the years Irish Steel Limited have received total Government support amounting to roughly £190 million made up of equity, grants, repayable advances and State guarantees. Of this, £143 million has been advanced since 1982 and cumulative losses as at 30 June 1989 amounted to £97.5 million.

Needless to say, company losses and State advances of this magnitude were not sustainable and the realism of that situation was reinforced in 1985 by the [653] adoption at European Community level of rules prohibiting State aid for European steel manufacturers.

In these circumstances, it was made repeatedly clear to Irish Steel Limited that it was up to them to review the whole range of their operations with a view to containing costs and ensuring that the company were in a position to generate the funds needed for ongoing investment. This was the reason the company had, since 1985, been engaged in a search for a suitable foreign company which could be of assistance in this regard, unfortunately without success.

It was against this background that the then Minister for Industry and Commerce, in the course of 1988, had been seeking to identify a commercial partner that would ensure the future viability of Irish Steel. The Korf proposal, which is the subject of the current motion, appeared to offer substantial benefits to Irish Steel, including the following: development of higher quality product lines with access to new specialist markets; installation of new or improved technology, including the possibility of an energy optimising furnace, which would improve productivity and overcome the problems associated with the power demands of Irish Steel Limited's present electric arc furnace; and development of an iron smelting plant on the Shannon Estuary which would provide Irish Steel Limited with a secure source of pig iron at relatively stable prices.

In essence, the Korf proposal envisaged a thorough upgrading of ISL operations by switching from vulnerable, low priced highly competitive commodity products of the present structure to special higher grade products which are not as susceptible to cyclical fluctuations in price and demand. The plan also envisaged a significant reduction in the cost per tonne of steel produced, an increase in the volume of production by bringing the existing facilities into full capacity utilisation, and an increase in the quality through the production of special steel.

[654] To achieve these objectives, a sizeable investment programme was promised, involving substantial expenditure at Haulbowline, the Shannon Estuary and in respect of a steel finishing plant in south-west Germany, which would be a subsidiary of ISL and service the local market in high quality steels.

While the general outline of the Korf plan had been formulated before the end of 1988, it was not until after signature of the acquisition agreement in May of this year that the proposed purchaser began preparation of a comprehensive assessment of the plant as part of a feasibility study for the overall project. This formed the basis for the submission of a full business plan on 13 September which, however, only contained very broad proposals in relation to the Shannon aspect of the project.

Consultants had already been retained by the Department of Industry and Commerce and their interim report on the Korf business plan was received in the beginning of October. The intervening period has been taken up with attempts to address those areas of concern identified in the consultants' report and with efforts to ensure that the undertakings of the purchaser will, in fact, be complied with. In this regard, I should say, in response to queries about the reason for the continuing delays and deferral of deadlines, that this is at least in part attributable to changes which have been made by the purchaser in respect of elements of his proposed financing.

In conclusion, the Government's concern is to secure the future of Irish Steel and their workforce without further State subvention. The current relatively prosperous state of the steel market is only a temporary reprieve from a situation in which, as Irish Steel readily acknowledge, there is a need for some form of association with a foreign joint venture partner who can bring much needed finance and marketing and technological resources.

The Korf proposal has the potential to [655] satisfy these needs, to the extent — and I want to stress this — that it can be adequately demonstrated that it will fulfil the various promises made.

In this regard, I do not consider the deferral of deadlines as wasteful delays but rather as the carrying out of a due diligence exercise on behalf of the company, their employees and the taxpayers of this country. There is nothing to be gained by allowing a deal to go through that does not represent the best deal possible for the Government.

[656] I want to assure the Deputy and the House, however, that there is no question of a sale proceeding unless the Minister and the Government are fully satisfied that the purchaser's plans represent the best technical, marketing and financial option for the company, that the resources are available to implement that option, and that the investment proposals promised by the purchaser will be carried out in full.

The Dáil adjourned at 11 p.m. until 10.30 a.m. on Thursday, 7 December 1989.

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