Wednesday, 4 July 1984
Seanad Eireann Debate
Minister for Industry, Trade, Commerce and Tourism (Mr. J. Bruton): The purpose of this Bill is to increase the authorised share capital of Irish Steel Limited from £50,000,000 to £120,000,000 and to provide, as a consequence, a similar increase in the value of shares which the Minister for Finance may take up. This will enable much of the debts owed by Irish Steel and guaranteed by the State to be converted into equity. We are not putting in new money, really, but providing for the redemption of debts already owed. That is a matter that is extremely important.
 A lot of the controversy about the Irish Steel decision in recent times has been on the assumption that we were putting in new money. The fact of the matter is that we are not putting in new money. As to the vast majority of this money, it is simply going to redeem debts that are already owed by the taxpayer, guaranteed by the taxpayer, and have to be paid by the taxpayer anyway. It is simply a question of whether it is better to close the thing down and pay them all off now, or keep it going and see if by keeping it going the profits that it might make, keeping going, would at least in some small way reduce at the end of the day the amount of overall debt that has to be met by the taxpayer. I stress again that this money which is going in is going in to cover debts that are already owed and guaranteed. I shall perhaps illustrate that in the remainder of my contribution here.
Irish Steel is, as I say, a wholly-owned State company with share capital of £50 million held by the Minister for Finance. It also received a grant of £25 million in 1981-82. The company's accumulated losses at 30 June 1983 were of the order of £43 million and it is expected that the loss for the year to 30 June 1984 will be in the region of £21 million. It has borrowings of £99 million. All of these borrowings, as I say, are guaranteed by the State under guarantees extended over the years by various Ministers.
These borrowings accumulated over the past six years as follows: 1979, £13.5 million; 1980, £28.6 million; 1981, £52.2 million; 1982, £62.1 million; 1983, £77.2 million and 1984, £99 million, which is now owing. It will be seen, therefore, that the vast bulk of the money now due relates to debts incurred in 1982 or before that.
It is clear that the level of borrowings and consequential interest is far too high and that a significant amount of it must be eliminated if the company is to have any chance of becoming viable. Otherwise the drain of interest payments will simply be too much and will smother the company. In converting some of the £99 million guaranteed debt into equity, we are not increasing the capital liability of  the taxpayer. We are simply relieving the State-owned company of the need to meet the interest payments out of trading profits and transferring the liability for these interest payments to the Exchequer. If this equity were not provided, Irish Steel would close straight away. Then the entire debt would fall to be met by the State anyway.
The decision the House is being asked to take in approving this Bill is whether Irish Steel should be closed without being given a last chance to prove itself. That is the essential decision the House is being asked to take on this occasion: whether, if the company keeps going, it can make some profits which will contribute to eliminating the accumulated losses, or whether it will close straight away which will happen if we do not pass this Bill. If it did, all the money would have to be paid anyway. In assessing this question the Government availed of the advice of the consultancy firm SOFRESID of Paris.
The House will be aware that under the “Aids Code” no financial aid may be provided by a member state to a steel undertaking without the prior approval of the European Commission and aid for the continued operation of a steel undertaking may not be paid after 1984. The aid proposed for Irish Steel is classified by the Commission as aid for continued operation. Therefore, we must get their consent. A notification of the maximum level of aid which the Government might provide to Irish Steel was sent to the Commission as far back as September 1982 to meet the deadline set by them for the receipt of such notifications. The maximum aid envisaged in that notification was the guaranteeing of further borrowings of £25 million and the provision of share capital of £89 million.
While it is expected that the loss for the year ending June 1984 will be £21 million, this will be made up of £12 million in interest on previous debt, £4.1 million in depreciation and £4.9 million in operating losses. This equity injection will enable much of the debt on which the interest arises to be repaid, thereby eliminating most of the £12 million. The depreciation of £4.1 million is relevant  only in so far as the eventual replacement of the mill at the end of its useful life is envisaged. The operating results therefore are the most immediately relevant factor in deciding on the continuance, or otherwise, of the mill. The projected losses on operation in 1983-84 of £4.9 million represent a significant improvement on past performance. The operating losses in 1980-81 were £8.2 million, in 1981-82, £6.4 million and in 1982-83, £5.7 million. We are down to a significantly lower figure of £4.9 million.
The question as to whether this downward movement in operating losses would continue, and whether the company would get into a profit situation, has been the subject of deep study both at national and at EEC level. Obviously, if the company was able to get into a permanently profitable situation, it would be able to make some contribution towards the redemption of the debts incurred in the past. If it was closed straight away, all of the debts would fall due and no contribution would be made.
The House will recall that the consultants, SOFRESID, were jointly appointed by the Government and the Commission in July 1982 to carry out a major assessment of Irish Steel's viability prospects. They concluded in September 1982 that the company's costs were not competitive. Nevertheless, on the basis of certain assumptions in relation to prices, reductions in production costs, including a reduction in the cost of electricity, growth in sales and revenue and the provision of additional State funds of up to £89 million, the company could, in the consultants' opinion, be viable in the long term and should be allowed to continue in operation. The consultants warned, nevertheless, that if it were decided to keep the company in operation and to provide the additional funds, there remained the risk of failure due to the extreme difficulty of breaking into the export markets.
On 29 June 1983 the Commission gave its decision on the application of the Government for approval to invest up to £89 million in Irish Steel in 1984. The main provision of the Commission decision was that the proposed aid was not  compatible with the orderly functioning of the Common Market and might not be paid to the company unless the Commission was satisfied, on the basis of information supplied to it by 31 January 1984, that the company could be financially viable by the end of 1985 without any further financial aid.
The Commission decision of 29 June 1983 also stated that the aid necessary for the continued operation of Irish Steel up to 31 January 1984 could be paid as long as the company was not in breach of the rules of the European Coal and Steel Community, particularly those relating to quotas and pricing. This is effectively interim aid. The Commission subsequently approved the giving of Government guarantees in respect of an additional £14 million which was necessary for the continued operation of the company on an interim basis and recently approved the giving of Government guarantees of a further £3.5 million. This was an interim decision.
In September 1983 the Government again engaged the consultants to reassess Irish Steel's viability prospects in the light of the company's performance since their previous report in September 1982. The consultants in their report of December 1983, the second report, commented very favourably on the results achieved by Irish Steel since their earlier report and indicated that the company had set up a distribution network, diversified its product range, kept to its rolling production programmes and placed its customer relationship on a sound basis. The consultants expressed the belief that, from a marketing point of view, Irish Steel had overcome the most difficult hurdle, namely, a significant breakthrough into the European market.
Information to enable the Commission to decide whether in its opinion Irish Steel would be financially viable after the end of 1985 without further State aid, given a conversion as of that time of £89 million of debt to equity, was forwarded to the Commission in January 1984. Arising from that information discussions took place with the appropriate Commissioners and with Commission officials. Resulting from those discussions  the Government and the Commission decided in May 1984 jointly to reengage for the third time the consultants to undertake a further investigation in order to reconcile the varying views and to indicate whether Irish Steel could meet the Commission's requirements for financial viability after 1985.
The indications in the consultants' third and most recent report are that Irish Steel can meet the Commission's requirements for financial viability after the end of 1985 provided the company is given a production quota upon which the report is based. On the basis of that report the Commission took an interim decision on 27 June 1984 which allows £36 million to be provided to Irish Steel pending a decision on the quota question. I will be dealing with the quota question later, the crucial outstanding factor in this matter.
I would now like to turn to the market in which Irish Steel must sell its products. The Company has made considerable strides in the past year but the situation in the overall market remains depressed. However, the Commission's forecast for 1984 does envisage a slight improvement in the market. Community production of crude steel in recent months has shown an increase over corresponding months in 1983. Overall the state of the Community steel industry is better in 1984 than it was in 1983 but recovery remains fragile. If I may interrupt to say that steel consumption in the European market over the next four or five years which is crucial to Irish Steel depends very much on the general European recovery. If that recovery does not occur the prospects for the steel market are very dim. The predictions are that it is occurring and even though there may be a slight recession in the United States in the later end of 1985 and most of 1986, it is not expected that that will unduly affect the European recovery. If that does not happen for one reason or another, if the European economic recovery is detailed, then the prospects not just for Irish Steel but for all steel producers must be very dim.
Apart from the problems as far as the economic recovery is concerned, there have been a number of technical changes  in the steel consumption pattern which has affected all steel producers to their detriment. That has been mainly the advances in technology which have enabled, for instance, motor cars to be constructed now with much less metal in them than in the past and much lighter bodies have been devised partly in response to the energy crisis. This, of course, has had an effect on the demand for steel. The effect on the steel market of the recession has been compounded by technical advances which have enabled users of all sorts of products involving steel to achieve their end results with a lower steel input.
Because of the major over-capacity which has existed in the Community steel industry for some years, there has been a tendency for supply to exceed demand. This excess of supply over demand caused prices to drop below the break-even point of many producers and seriously eroded the financial viability of the European steel industry. The Commission is trying to remove this excess capacity through the implementation of the “Aids Code” which provides that aid to a steel undertaking must be linked to a restructuring programme including where appropriate a reduction in capacity. Present indications are that capacity reductions are likely to go beyond the target set by the Commission and could be of the order of 30 million metric tonnes by 1986. That is against a background in which we are increasing our capacity.
Among other measures currently being operated by the Commission are a system of production and delivery quotas, minimum prices for certain steel products and more stringent measures to prevent infringement of the quota and price rules.
The House will be aware that the Commission has since 1980 operated a system of production and delivery quotas. The present system is due to terminate at the end of 1985. The main objective of the system is to control the supply of steel products coming on the market so as to prevent prices from collapsing and thereby allow the steel industry to restructure within a stable context. The quotas for each company are based on its historical production, with some adjustment  for companies which have brought new capacity on stream. Senators will appreciate that Irish Steel's historical production was extremely low. For some of the base period upon which the quotas are calculated Irish Steel was not in production at all because the old mill was being replaced by the new one. Hence a quota based on that base period puts us completely at a disadvantage, hence the crucial need for us to get effective renegotiation of the application of the quotas in our particular circumstances.
To date the quota system has not created major problems for Irish Steel. This is because so far, it has been operating well below its technical capacity because, relatively speaking, the mill is only recently commissioned. From now on, however, it will need a higher capacity utilisation rate and a higher output than is possible under the present system. At present the plant is only producing at a little over 40 per cent of its capacity but to be economic it must be producing very nearly 100 per cent. If it does that it will obviously break through the quota barriers that are in existence at present. Unless those are lifted they cannot reach profitability.
Indeed the basis on which SOFRESID has expressed confidence that Irish Steel can reach profitability is that it has so far been working well below capacity. If it could operate at a more realistic level and sell its output at reasonable prices, it has excellent prospects of making operating profits. However, unless Irish Steel is granted appropriate increased quota it will not be able to become viable and will have to close very quickly. I raised this problem at the Steel Council meeting on 26 January 1984. The Commission declared its readiness to submit a proposal to the Council for alleviating these problems. This was on condition that the, restructuring programme had enabled it to acknowledge the viability of the undertaking after 1985. While it is not certain that the Council of Ministers would agree to such a proposal, I would hope, in view of the relative insignificance of the capacity of Irish Steel's plant even at full production in Community terms the Council would agree.
 Notwithstanding the quota system, the price of certain steel products deteriorated considerably in the second half of 1983. The Commission, therefore, felt it necessary to strengthen the market organisation measures by introducing in addition to quotas minimum prices for these products with effect from 1 January 1984. The Commission also introduced tougher measures to prevent infringement of the quota and price rules. Under these measures each steel producer of the products covered by minimum prices is obliged to lodge with the Commission a security deposit, based on his quarterly quota for delivery on the Community market, which will be refunded the following quarter provided the producer has not been found to have infringed the quota or price rules. If, however, the Commission finds that a producer has infringed the rules, it may require heavy fines to be deducted from the security deposit.
A favourable decision by the Commission on the viability question, a suitable adjustment of quotas and the investment of £89 million by the State will not of themselves ensure the future of Irish Steel. The company must continue to increase the volume of its sales, reduce production costs and obtain realistic prices for its products at a time when the international steel market is still very depressed.
As far as production costs are concerned, I must state that one of the disadvantages facing Irish Steel is the high price it pays for its electricity supply compared with the prices prevailing in other member states. The consultants stated that the ESB tariffs represented a disadvantage to Irish Steel of £15 per metric tonne of steel produced compared with a reference plant in France. This was a feature of their 1982 and 1983 reports and they recommended in their first report that if this disadvantage could not be eliminated by a reduction in electricity tariffs or other cuts in costs, Irish Steel should be closed. In their 1983 report they regarded the total cost disadvantage as having been reduced to £12 per tonne but the electricity component of that remained at £15 per tonne. This is a feature  of the way that our tariffs are structured in this country and overall electricity costs.
A comparison of domestic and industrial electricity tariffs, exclusive of tax, in Ireland with those in seven other member states of the Community indicates that the tariff structure in Ireland is substantially less favourable to industry than is the case in all of the other seven member states. An indication of this advantage is that, at given levels of consumption Irish industry pays over 93 per cent of the domestic rate per kilowatt hour compared with an average of less than 72 per cent for the other seven. The consultants concluded that electricity tariffs in Ireland, unlike those in the other countries, provided no incentive to industrial development. Because of the importance of electricity charges to heavy industrial consumers, such as Irish Steel, the Government have decided that the Minister for Energy should bring before them within a month, an assessment on energy pricing policy.
It will be clear to the House from what I have said that the difficulties facing Irish Steel are considerable. The company must achieve an increasing level of sales at a time when the steel market continues to be depressed and when many producers in the Community are being compelled to reduce their production capacity under the European Commission's “Aids Code”.
Irish Steel has a modern, flexible plant which can adjust to changing patterns of demand and which, according to the consultants, is one of the most technically advanced plants in Europe. As far as sales are concerned, the company has made considerable progress in the past year in that the volume of sales for the year to 30 June 1984 is expected to be some 40 per cent higher than that achieved in the year to 30 June 1983 which was more than double that achieved in the previous year. While this performance is encouraging, much more remains to be accomplished in relation to costs, prices and sales if the company is to have a secure and viable future. The difficulties facing Irish Steel are considerable  and a dramatic improvement in the steel market simply cannot be counted upon.
As I have already stated, the company has State-guaranteed borrowings amounting to £99 million and this Bill allows for the redemption of debt. It is our hope that after this conversion of debt into equity the company will become viable. If it does it will be able to service and repay all the remaining Government-guaranteed loans and make a return to the State on its investment. There is, of course, the risk that the company might fail to make the necessary progress towards viability. The additional risk to the Government between the cost of closing Irish Steel now and its closing at a later date if not viable is in the region of £5 million. If I may respectfully suggest to the Seanad, that is the figure we are really talking about because the rest of the money provided in this Bill is money that is already owed. This limit arises from the fact that if the trading position deteriorated to that extent the company would have to close because the Commission would not permit the State after the end of 1984 to assist the company any further by way of investment, grant or guarantee.
Therefore, the additional risk capital represented in the decision, to introduce this Bill and allow Irish Steel a last chance, is £5 million in current money terms. From the end of this year the company will have to finance its operations in a normal commercial manner without any recourse to the Government.
I repeat that much remains to be done before the company's future is secure. It is clear that Irish Steel's future depends on the whole-hearted co-operation and dedication of all those who work in the organisation and on the way in which the markets for its products develop.
Mr. Smith: The performance of the semi-State sector is obviously a very critical factor in the management of our economy. There have been a number of occasions in recent years when Bills have been introduced in this House and the other House to bail out a semi-State organisation in financial difficulty. Perhaps because of the economic stringency in which we live, these Bills tend to provoke a fair amount of public comment and it is essential for all of us to examine, to analyse and to make sure that whenever the State is involved, the commercial ethos and the commercial criteria we apply to the economic life in private systems would apply to the greatest degree possible in the management of semi-State organisations. That is why we support this Bill.
I was a little disappointed with one or two of the Minister's statements. He is obviously trying to counter some unfavourable publicity, and perhaps some misleading publicity in the context of this whole development. He said that if this equity were not provided Irish Steel would close straight away and the entire debt would fall to be met by the State anyway. One of the problems which has beset the semi-State sector over a very long time has been the notion that no matter what happened, at the end of the day the State would pick up the Bill. This has done very little to persuade them of the need to modernise and to operate without State support, or with minimum support in order to survive in a recession.
While the Minister might want to counter some of that unfavourable publicity I think that in the introduction of Bills like this it would be far better if we had a more positive approach for the future. Commentators have named certain  public State or semi-State organisations as lame ducks, legless ducks and even dead ducks. I believe that we have to have a fairly substantial State involvement in Irish Steel and in a number of other areas. Cork has a particularly bad unemployment problem: I understand the figure is in the region of 22.5 per cent. There have been a number of closures in that area. Before any further closures take place, it behoves us to use all the means available to us to ensure that there would be no further redundancies. Although Irish Steel have been able to make significant progress in recent times, the Minister outlined the sliding scale of losses in the year-to-year management of the factory and these losses have been dropping at the rate of around 50 per cent per annum. This augurs fairly well for the future if we can ease the interest payments which flowed from the massive development in the new mills and furnaces: a totally new plant has evolved there in recent times. Because of overheads and interest payments the viability of the whole enterprise has been badly shaken and it will be necessary to remove those obstacles for the future.
I would like the Minister to indicate what share of our quota we are filling. I understand that production this year is 136,000 tonnes and it is estimated that that will grow to 200,000 tonnes next year and in the following year to about 250,000. The task force on Irish Steel indicated that the annual production for viability would have to be in the region of 300,000 tonnes. What kind of quota would be needed to meet that production level? The question of price has to come into it; meeting the production target is only half the problem. If the price for the product is not an economic one, then obviously the matter will have to be looked at again in the light of that situation.
Very often decisions taken by one Minister do not seem to relate to those taken by another, but in the context of Irish Steel, I wonder how wise it was to scale down farm development, farm buildings and grants — particularly when a significant proportion of the funds are already coming from the EEC — because such  development must make up a significant part of the sales of Irish Steel. It would seem inappropriate to be creating further difficulties at a time when we out-winter almost 50 per cent of our animals, which is far from what the position should be if we were developing property on those lines.
I was interested also to hear the Minister say that some new policy will be developed in relation to ESB costs for Irish Steel. This point has been made for a number of years and electricity prices seem to place Irish Steel at a distinct disadvantage with their competitors. In the Minister's statement he indicated that it probably could be of the order of 15 per cent. In the climate in which Irish Steel are operating, in this recession and the difficulties they are trying to overcome, these electricity charges appear to be an additional burden and some way will have to be found to deal with them. It is probably impossible to deal with that problem in isolation. There are other industries that have high energy requirements, and perhaps it is an area on which more discussion could take place to try to come forward with a scheme which would reduce energy costs.
It is important to relate those policies to the maximum job content possible. Some of our grants and some of the concessions provided by the Government from time to time in a country with a growing population and with such an employment problem. We should try to gear those policies towards labour-intensive industries and place them at some advantage against companies where there are huge capital investments, but very little real employment opportunities flowing from them.
We support this Bill. With the developments that have taken place in recent years we hope Irish Steel will be able to become viable. I hope this will be one of the last Bills to come before this House where such a huge sum of money has to be found to ensure that a semi-State organisation becomes viable. The time has come for every organisation in the country to apply the strictest possible systems for the future and to realise that the  taxpayer and the country as a whole cannot continue to support companies which are not in a position to find resources, year in year out, from their own operations in order to maintain viability.
Mr. Cregan: I welcome the Bill which indicates a vote of confidence in Irish Steel. It is only right that we should recognise the plant for what it is. To say that £89 million or £90 million has been put into it so far would not be the truth. That amount is owed, dead money, and we should not be giving the impression that Irish Steel need £90 million now. Irish Steel need money to keep going up to the end of 1984 and that is what the Bill is providing. Many serious questions have to be asked about the cost of producing steel here and in other countries.
Both the Minister and Senator Smith questioned the cost of energy to Irish Steel. Energy charges by the ESB are seriously affecting many heavy industries throughout the country. They are high by comparison with other countries. Indeed, we are paying 30 per cent higher for energy than other countries who produce steel. Therefore, I was glad to hear the Minister say that the Department of Energy have asked for a report within a month.
Serious questions should be asked of the ESB because they now have overproduction of power which is not being used. In such circumstances should the ESB not be prepared to give energy to such enterprises as Irish Steel at lower prices? I read in a report recently that ESB charges are all related to world oil prices. They get quite a proportion of their fuel from Bord na Móna but Bord na Móna these days are charging oil-related prices for their solid fuel. There is no reason why milled peat and turf should not be priced at the same levels as other solid fuels — for instance, coal. If the ESB were able to get their fuel at solid fuel prices from Bord na Móna they could save at least £20 million which could be shared out among heavy industries which would mean that such industries would be competitive. I hope this will be considered by the Department of Energy when compiling their report.
 These things have a considerable effect on Irish Steel whose management and workers jointly have said that all things being equal they can produce an excellent product by comparison with their EEC competitors. They were losing large sums of money but they have diversified and consultants have said that their product is excellent by comparison with other such mills throughout Europe. If they are given a fair chance they will become profitable. It would be impossible to ask Irish Steel to pay £50,000 weekly in interest charges and hope they would make a profit.
I was glad to hear the Minister devote so much of his speech to the EEC steel quotas. Our population is only 1.82 per cent of the EEC's total population of 270 million, yet our total quota of steel production is only 0.2 per cent. I know the Minister is capable of arguing at EEC level that this quota should be improved. If we could get it improved by 100 per cent to 0.4 per cent it would mean an enormous benefit to Irish Steel who could possibly employ more people. We have heard the argument that the Government have been putting money into white elephants. The IFA said that Irish Steel is a white elephant and that we should not be pumping money into it. I would appreciate it if those people got their priorities right and got their own house in order. Take the amount of money spent on brucellosis. Since 1964 this scheme has cost £80 million and the situation has not been improved in any way.
Mr. Cregan: I am talking about  whether we want people working or if we think people should be getting money for doing nothing. More than £230 million has been spent on brucellosis and bovine TB and there has not been any improvement.
Mr. Cregan: I would appreciate if their leaders would stick to their jobs. Production in Irish Steel has improved enormously. I was appalled to read a statement in the Dáil last week that there have been complaints of absenteeism in Irish Steel, that it had increased by 7 or 8 per cent. I understand that the work force there are quite happy. The marketing team in Irish Steel have improved enormously and if they get half a chance in the European market they can regain profitability by the end of 1985.
In the region of £100 million has been spent by the Government in the area where Irish Steel is located in recent years to try to improve the position. That investment was in such projects as new water schemes, the provision of a supply of natural gas and, as a result of the report of the task force, a deep-water berth. Those projects represent a big improvement in the area and I hope that, if there is an upturn in the sale of steel in coming years, transport costs to Irish Steel will be cheaper because it will be possible to ship heavier loads to the new deep-water berth.
It is unfortunate that in the Cork area last year many old industries closed down. While the Government recognise the need for investment in Irish Steel to the tune of £90 million, it is unfortunate that in another part of the city other people are prepared to spend £25 million in the elimination of jobs. I do not think we can boast about the fact that other industries are prepared to eliminate jobs at any price. I accept that the Government in the case of Dunlops last year and Fords this year made every effort to keep the respective plants open, but should we not be asking serious questions as to why such plants are closing down? Should we not be asking why international comparelate  nies are prepared to spend so much money on the elimination of 800 jobs? We should consider what would happen if £25 million was invested in those plants. Are we saying that our costs compared with other countries are not right? Is this an indication that our energy charges are not right? I am glad that the Government recognise the urgent need to put our house in order and to ask such concerns to put their houses in order. Irish Steel are prepared to make the effort to put their house in order and I hope they succeed.
I do not think the EEC Commission have any right to say that they will only allow the present position to prevail until the end of 1984 by which time the company must have their house in order. In imposing that condition the Commission admit that the quota of steel they are allowing into the EEC from us is a drop in the ocean in comparison with the amount allowed in from other countries. If the quota is increased a guarantee can be given by the company that they will get their house in order. The EEC does not have any right to say that money should not be given to Irish Steel and at the same time tell the company they are not permitted to increase their sales in the Community. The Cork plant, when compared to other plants in Europe is very good. I appreciate that some of the plants in other countries have been in existence since the early forties. It is only right that the Commission should recognise the problem of the Irish concern and increase the quota. Our new MEPs, and others, should be made aware of this. We are not asking very much when we seek an increase in the quota of 0.2 per cent. We are only allowed 10 per cent of what we should be when one compares our population with the population of other member states. We should press that case in Europe and I am certain Irish Steel will answer for themselves.
Mr. McDonald: In my brief contribution I want to support the Bill and compliment Minister Bruton on the success of his negotiations in regard to this difficult matter in recent months. I should  like to compliment his officials also for turning what appeared to be a hopeless case some weeks ago right around. I hope management and workers in Irish Steel will respond in such a fashion as to ensure the future viability of the concern. The Bill represents a great act of faith in the management and workers of Irish Steel. I am convinced that the time has come when all concerned in this industry and in other loss-making semi-State concerns must realise that a trojan effort is required to ensure the continuation of such important industries.
After almost 30 years of fairly successful operations the IDA should take greater chances in their efforts to attract new types of industry. We do not have a great spread of heavy industry. When I was President of the Regional Fund Commission in Europe I travelled extensively in the steel belt of France and Germany and I am aware, following those visits, that it is difficult for us to compete with the giant steel mills that exist on the Continent. Nevertheless, we are entitled to have some heavy industries here. I hope there is a good response to this act of faith in the industry by the Minister. When one considers the plight of our taxpayers we cannot say that we will be of the same frame of mind in a few years' time if the Minister comes to us with a similar request. He will need to show that the people concerned responded well to this opportunity.
Some time ago I wrote to the Minister on behalf of a farmer in County Offaly who erected a shed in 1978. I visited that farm some weeks ago and noticed that 11 sheets of galvanised iron were covered with holes. While Irish Steel accepted that the galvanised iron was their product and that it was faulty, they refused to pay compensation because the farmer did not buy the material directly from them. I have not heard of a farmer who can go to a mill and purchase steel. Perhaps it happens in Cork.
 On my farm we have a shed erected by Powers of Kilkenny in 1910 which is still serviceable. In my case the shed has lasted about 70 years but in the case of the Offaly farmer after a few years the shed is falling apart. We should be talking about something that lasts for 70, 80 or 100 years, but here is a clear case where a structure is absolutely falling apart. One can see the daylight through it, yet this firm are getting £120 million. If they cannot stand over their products then we are throwing good money after bad. I have not had a very satisfactory reply to the representations I have made to date, but I suppose it will come.
Before the House would approve this kind of money for any company, that company would want to believe in what they produce. I ask for a guarantee that they are prepared to stand over their products. If Irish Steel Holdings cannot stand over their products, then it is unfair to ask the taxpayer to put that kind of support behind them. However, I have never heard of another such case. It is the only time I have ever heard of galvanised iron being faulty or substandard, and for that reason I was absolutely shocked that a respected company like Irish Steel Holdings should not stand over their own products. I would ask the Minister to take up the case and give the House an assurance that the policy of the company cannot be so bad that they do not recognise or stand over their own products.
Mr. Magner: It is regrettable in some ways that when the Government make a very positive commitment to an industry Senator McDonald should shoot the whole thing down in flames because of a defective shed somewhere. It is probably not the best way to begin.
Like other Senators I welcome the Bill and the Government's commitment to Irish Steel. In the recent case of Irish Dunlop the decision to close was taken outside the State. We did not have the full picture. We were not aware that Dunlop intended to sell their European tyre making operations and any amount of money the Government were prepared  to offer and any flexibility that the trade union movement was prepared to offer were, as we know, of no avail. The Ford plant in Cork is due to close this month. The Minister will be well aware of this because he had to travel to Detroit to discuss with the Ford Motor Company any possibility of saving that plant in any form, however reduced. To date that attempt has proved unsuccessful, through no fault of the Government. Again that decision was made in Detroit. It is gratifying at the very least that the decision on Irish Steel can be made by natives rather than taken by foreigners who have no regard for either the economy or for the people of this country. Dunlop and Fords demonstrated that. It was not a question of assisting them or any flexibility; it was simply a case that they wanted out and they got out.
One of the things which must give hope to the Minister and the Government is the very positive attitude of the work-force in Irish Steel, the extremely positive attitude of the transport union and the engineering unions involved in Irish Steel. The Minister referred in his speech to the re-equipment. Very serious disruption was caused to the production runs and to the staffing levels. Quite a number of people were laid off for a period of time by Irish Steel during this re-equipment programme before the new mill came on stream and was commissioned. During that time, if my memory serves me correctly, there was little, if any, industrial action. The unions accepted the fact that this mill had to be re-equipped and that the obvious consequence would be that people would be dislocated for a substantial period of time. All that was accepted. We now have an extremely modern plant which is capable of meeting what will hopefully be the improved quota which I am sure the Government and the Minister will extract from the Commission in the next few months.
It would be less than generous not to say that the Minister deserves our congratulations on his negotiations with the Commission. A lot of us felt he was on a dicey docket and we hoped for the best  possible response. We were also aware that there was a third party assessing in a very objective and professional way the capacity of Irish Steel to remain in business, and we were hoping that they would come down on the side of Irish Steel. Obviously they did. The success so far leads me to believe that the quota problem will be overcome.
Senator Cregan referred to an amount of steel which the company would be allowed to produce without having a significant effect on overall European steel production. It would have been most unfair and beyond understanding if the Commission had stuck on a quota based on a very old outmoded plant and simply said that the quota would be based on the historical production. That would be totally unreal. It would be rather idiotic to say: “here is the money to re-equip, go away and do the job and when you get everything in position we will not allow you produce it”. That would be totally illogical and would not be acceptable. The fact that moneys and commitments have been forthcoming leads me to believe that we will be successful in getting an improved quota.
I want to reiterate what Senator Cregan said. This is not an injection of new cash. This is a financial restructuring job with an extra £5 million being put on the table. From the end of this year the company will have to finance its operations in a normal commercial manner without any recourse to the Government. Is this a Government decision? Has the decision been made in effect that Irish Steel cannot have any recourse to the Government?
Mr. J. Bruton: Those are EEC rules. All Governments in the Community are  bound by these rules and, indeed, in the long term they are in our interest too, because we have less capacity to go on propping up our steel industry than other competitive countries have. It is not a Government decision, it is a Community decision.
Mr. Magner: We would want to be careful. I am just taking what the Minister said in his speech and it seems that if they had an operating loss of £0.5 million, he would simply shut up shop and throw 700 people out of work, plus all of the spinoff and downstream jobs. We are talking about maybe 1,500 jobs for an operating loss of £0.5 million. I do not know what the State would be caught for in redundancy payments, probably many millions of pounds. I would like the Minister to indicate whether we are saying that irrespective of the size of the operating loss, even if it is extremely small, they would have no recourse at all to Government, no Government assistance of any sort. I want to know if that is what is being said.
Energy costs with which the Minister dealt quite extensively in his remarks, are a significant factor. I do not think anyone would deny that. I understand there is an inquiry in progress at present into the cost of energy, electricity in particular, and that report has yet to be produced. I am sure, when it is produced, it might solve a few mysteries for us all as to why the costs of electricity are so high in this country and so uncompetitive when compared with those of our neighbours in Europe.
Obviously it is not possible to isolate Irish Steel and say “We will give them electricity, or energy, at a cheaper rate  and ignore all our other industries”. Obviously Irish Steel would be a very heavy user of electricity. But then so would Tara Mines. Are we suggesting that we should give subsidised electricity to Tara Mines? Is it being said that the cost to the domestic consumer is too low? I do not believe that any consumer would believe that, their bills show otherwise. I do not think the domestic consumer at present could bear increased charges in terms of extra payments on electricity. Most people's perception of the present situation is that they pay for too much already. If the proposition is being put that, in some way, the balance should be redressed in favour of industry by upping it on the domestic consumer level that would not be morally acceptable or politically viable. I do not think that is on.
Therefore, one must await the results of the inquiry into the cost of energy. Also the Minister indicates that there is a paper coming before Government in relation to energy pricing, pricing structures for energy and industry and so on. We will also have to await that paper. But I would say that it is an act of faith by the Government which I think is well placed. I have a lot of contacts in Irish Steel, amongst the unions in particular. I cannot speak for the management because I do not know any management people down there. I would hope that they are competent; they appear to be committed. Much depends on management in this whole area because management and not the workers control the marketing expertise side of the operation. A worker can increase his production, be as flexible as Molly Bawn — as they used to say — but it would mean nothing if the skills and the expertise on the marketing side are not up to standard. I sincerely hope, and I think the Minister has grounds for believing, that they have got that marketing side of it right. Many of the problems we encounter in Irish industry are marketing problems. We can make good products but we cannot sell them because we do not know how to present them. We are very bad at the selling business.
From my knowledge of the work force I believe they have a very positive attitude  to their industry. They want it to survive. Unfortunately that is not common in all industries. But, in the case of Irish Steel, there is a very positive commitment by the work force. They want this plant to survive; they want their industry to survive. They are not anxious — which is not a sign of the times but a very hopeful indication for the future — simply to take whatever redundancy money is available and leave. They have this tremendous commitment, not alone in staying in their jobs but in protecting those jobs for future generations.
All that being said, I hope the Minister will indicate to me, in terms of closing the door or the last chance, what are we talking about? For example, are we talking about an operating loss of £500,000 and that thereafter there will be no doors open? I should like him to reply to that. I congratulate him, his Department and the Government on their act of faith. It is particularly welcomed in Cork. We always think we are special and we know we are not. The Minister has been in Cork recently as part of the Government task force and he will have first-hand knowledge of the very serious unemployment situation obtaining there. Therefore, in many ways, this act of faith by the Government will be welcomed by the people of Cork, by the workers of Irish Steel and by the trade unions involved.
Mr. B. Ryan: As a blow-in to Cork I probably have a particular obligation to welcome a Bill like this, lest I be accused of forgetting where I got the first and only job, apart from politics, I have ever had. Obviously this decision by the Government is welcome.
The Minister was quoted as saying, in The Cork Examiner that the Government on their own cannot create a single job, an argument I might take up on another occasion. I do not necessarily accept that that is true. There is a certain ideology behind that statement which is almost as rigid in some ways as the ideology that those of us on the left are often accused of displaying.
Irish Steel have to be looked at in slightly more than purely commercial terms. Unlike many people on the left in  Irish politics who have a rather soft conception of how one runs semi-State companies, often there is quite a substantial level of political opportunism in the response in attitude to semi-State companies, particularly in the commercial sector — which is that if you are in Opposition every time there is an indication that a semi-State corporation is not going to be commercial you find some other noble reason for sustaining it. Funnily enough I do not subscribe to the view that semi-State corporations are somehow sacrosanct, that on every occasion they need to be preserved and sustained because of their unique position. What I do believe is that they must have the same scope for enterprise and initiative of their counterparts in the private sector.
In the NESC Report on Enterprise in the Public Sector, published some years ago, if I recall correctly, some members of the council were somewhat at pains to distance themselves from some of the conclusions. Though they published their report some members indicated that they did not necessarily subscribe to everything in it. The general perception of the report was that many people in commercial areas in the public sector felt inhibited about being involved in enterprise by what they regarded as unnatural restrictions and a heavy bureaucratic hand on top of them. I am not for one second suggesting that that was the problem in Irish Steel. Incidentally, I am very glad to notice that, for once at least, the work force have not been blamed for the inadequacies of one of our corporations. It has become almost a sine qua non of criticism of inadequate operation of companies, both in the private and public sectors in this country, to attribute an extraordinary amount of the blame to some inadequacy on the part of the work force. It is quite extraordinary that half our work force in the export area can be virtually more productive than anybody else in the world. The other half, apparently, are the most inefficient in the world, if we are to believe the things that are said about them.
Irish Steel must have a particular strategic value in this country which cannot  be quantified by whatever sophisticated accounting methods are employed. The significance of Irish Steel as part of an industrial infrastructure needs always to be considered when decisions about its future and its viability are being taken.
I read with interest the Minister's remarks. I apologise to him that I could not be here when he spoke. There was nothing in the consultants' report, which he read into the record here to which one could take too much exception. I am afraid I am too much of an engineer to ignore the realities of costs, efficiency and so on. In spite of my ideological convictions, I am, funnily enough, quite pragmatic about the way enterprise operates.
I hope that the identification yet again of electricity costs as a major factor in Irish Steel's problems is not going to result in a confused attack on a moderately to extremely successful semi-State company, the Electricity Supply Board, whose efficiency and expertise in many areas are recognised internationally and who are blamed for the problems they have which are often the direct consequence of unjustified political interference in their operations in the past. There are people in the ESB who still tell you that whenever there is an election or a by-election they wonder if there will be a decision announced about building a power station. People I know in the ESB have profound reservations about this manner of announcing decisions about new power stations. I am not saying that this is being done in the time of the present Minister. Whatever else I would accuse him of, I would not accuse him of taking such decisions about major State investments on the basis of political expediency. He does not operate in that way, and for that I give him credit.
However, there is no doubt that in the past the ESB have been asked, for instance, to take a mixture of social and commercial decisions without any attempt to separate or even quantify the two contributions. Then the finger was pointed at them as an organisation and it was said that they and they alone were responsible for the high cost of energy and electricity. That is very unfair to  them. If there is a problem about the electricity charges to Irish Steel, then the source of the problem should be identified in broader terms than simply blaming the alleged inefficiencies of the ESB. The ESB, unlike some semi-State companies, do not need me to defend them. They are better than most at defending themselves, and that is to their credit.
Mr. B. Ryan: I wish that other semi-State companies had the same gumption and compunction to defend themselves vigorously in public. Mr. Moriarty is as fine a defender of the public sector as I know and I wish other semi-State companies had as good a capacity to defend themselves.
I hope that the decision about Irish Steel Limited will be followed by a series of other decisions to recognise the level of disaster that has befallen my adopted city in recent times. Only recently while walking through Patrick Street I realised the number of premises and the number of units in new shopping centres that have closed and remained closed. Domestic consumption and retail sales are probably the best indicator of the level of disposable income that people have. The change in that environment in Cork in the last 12 months is probably the best indicator of how bad things have become. Unfortunately, matters have not reached their lowest point yet. People are still to some extent living on the accumulated redundancy money etc. and I fear for the position in 12 months.
Another indicator of the state of Cork's finances is that anybody involved in any voluntary or charitable work in Cork will tell you how their income has dried up in the last six to 12 months. People simply have not got any more money. It is a unusual position for Cork, because we rode out the last major recession in reasonably comfortable style. Therefore, on this occasion decisions about how major infrastructural investments will be made and about the future of not just Irish Steel Limited but NET also must be taken in the light of existing circumstances and the role that such  corporations play, not simply assessing them on their own commercial criteria although that should be done. No semi-State corporation should be absolved from meeting normal commercial criteria at least in terms of assessing their performance. To disgrace myself on the left, let me say that there are few better measures of efficiency in a commercial concern than their capacity to create wealth in their operation. That is not to say that that should be the sole criterion on which the future of any major State corporation should be decided, but it is a useful measure of their ability to do their job properly, particularly in areas such as steel making and chemicals where adequate international comparisons are available.
I am very glad that Irish Steel Limited are being given the opportunity to prove that they can do what they have claimed they can do. I hope that the conditions they have to meet will be assessed continuously in the light of the circumstances as they exist and not by some single bottom-line calculation. They are a unique company with unique opportunities and unique difficulties, and it will be very difficult to make an objective comparison based on any established criteria. Their role in Irish society and in the region in which they operate and their strategic value to this country will all need to be assessed. In the short term I think that the decision was wise and prudent and, speaking as somebody living in Cork, I am very glad of that decision.
Mr. Conway: I rise to welcome the Minister's proposals. His speech outlines exactly the situation in Irish Steel. We must look at the figures. Irish Steel's borrowings from 1979 to 1984 were £99 million and their losses from 1981 to 1983-84 were £25.2 million. Their loss in this year 1983-84 was £4.9 million and there is no reason to believe that their loss in 1984-85 will not be in that region also. The case that the Minister had put up is that this company are to get £5 million now, that is the end of their financial problem and they have become a viable company. The Minister has already stated that under EEC policy the  Government are not allowed after this to finance the company. If that is so, then we will have a serious problem in Irish Steel.
I would like to develop further the situation of the debts of Irish Steel, their liabilities to the bank, VAT and PAYE. If this company are to get an injection of £5 million now, they will be commercially viable and they can operate next year very well. The Minister stated that the company made considerable strides in the past year or so but that the situation in the overall market remains depressed. If the market dictates what is to happen, then we are talking about a force outside the company. We are talking about the market. He talked about the overall state of the EEC steel industry and said that it was better in 1984 than in 1983 but that recovery remains fragile. That means that the future will be difficult indeed. I agree with him that technology has had a major effect in this industry, that we are moving away from steel for various machinery, parts etc. into other products and that is having a major effect on steel. Perhaps the quotas are to blame. If you get your quota and are at production capacity of 40 per cent and push that up to 100 per cent, can you sell your products? Is the market there? If the market is depressed, how can it be available to you? Irish Steel are an extremely good company as far as their production facilities, production runs and marketing are concerned. Senator Magner has referred to their realist work force operating in an extremely modern plant producing at 40 per cent. If that production goes up to 100 per cent can the market accept that 100 per cent irrespective of the quotas?
The other matter to be looked at in the company is the reduction of production costs but can they reduce their production costs if in effect they are operating a highly modern and efficient plant? If the cost to the company of electricity is reduced, is it reduced at the expense of the consumer or is it a direct grant into the company to reduce the cost of electricity?
Mr. Conway: I do not understand how a company can reduce their electricity costs apart from a decision by the ESB to reduce their cost to that industry. If, as Senator Magner says, it is reduced to a particular industry all other industries will be looking for a reduction in costs. Is that a matter for the ESB or for the Government to decide?
Mr. Conway: There seems to be a feeling in semi-State bodies that there is a well that can be tapped and retapped and that accountability in the end is a matter for the taxpayer. We in the semi-State bodies committee have considered particular semi-State companies. One of these, CIE hotels, had losses of up to £10 million. We met their managing director. As Senator Ryan says, Mr. Moriarty of the ESB is able to talk for himself but I heard another gentleman, Mr. St. John Devlin, say he had dealt with seven Ministers in the past five years and that there was a total disregard for Government, with the impression being given that money for leasing would not have to go through the Dáil but that one would have to go through the channels of Government in order to get money for capital. If only half of what the gentleman says is true we will have a major problem when dealing with Udarás na Gaeltachta in respect of GT Carpets. If what the Minister says is right — and this is the major question for this company — if £5 million puts the company into a viable position, if they have an extremely modern plant and very good industrial relations and if they can increase capacity and get the correct price on the market, they will prove viable. However, if we are to take past evidence of borrowings of £99 million and consistent losses from 1980 to 1984 of £25 million, this company are in  serious trouble. They cannot come to us seeking more money. They will be on their own. If, as the evidence seems to indicate, there are major problems in the market the company have a problem. What I would like to ask is if the £5 million goes and the company cannot survive, what is the cost of actually closing the company? Is there any question of the company going? The Minister seemed to be about to answer.
Mr. Conway: The basic question is if this company are to become viable as a result of this injection of money. If they become viable and wipe out all the interest charges and so on and push production to 100 per cent capacity, will they be able to sell their product on the market? If so, how much money will the company make in 1984-85 and for how long will the success continue? Will they be able to sell at the right price? Is the major problem the level of production costs, which is high because of electricity charges? If these charges are too high how can they be lowered? Who actually pays the bill? How can electricity charges and costs be actually lowered? If this is the last chance for the company perhaps it is important to give them more than £5 million.
Minister for Industry, Trade, Commerce and Tourism (Mr. J. Bruton): I will deal first with the questions raised by Senators Conway and Magner, who asked how one could reduce electricity prices to a large industrial user like Irish Steel. First, as I have indicated in my reply, the Tánaiste will be bringing within about a month his views on this matter to the Government. Anything that I would say would be in a sense prejudging the conclusions he might reach. I would also say that we expect to have in the hands of the Tánaiste sometime this month the report of the Committee of Inquiry which  I established last year to inquire into electricity prices and which will deal with how one can reduce electricity prices generally. I presume it will deal also in particular with the problem of very large users of electricity such as Irish Steel and a few other companies who according to this international consultant face a tariff structure that is less favourable to the large user in industry in Ireland than is the equivalent in other countries with whom Irish Steel must compete. A difference in the price of major input which might appear very small in the overall cost of production can be just the very factor that can lose one the vital order. One should not minimise it just because electricity costs might only be 20 per cent of total Irish Steel costs. If they are out of line by even 5 per cent that could be enough to lose the company very important orders. They are competing with the producers in other European countries.
I do not know whether I should go into any greater detail of what the possibilities are, but clearly there are areas such as the internal costing in the ESB, the cost of generation of electricity and the cost of some of the inputs brought by the ESB that are relevant.
Senator Cregan referred in particular to mill peat price which is an area which would be looked at, and then there is the tariff structure itself. The aim should not be primarily to redistribute the burden between industry and the consumer. It should be to reduce the overall burden of electricity costs by improved internal efficiency in the ESB and efficiencies in regard to the prices they pay for various inputs. It would be wrong of me to go further than simply to sketch out the possible areas which might be covered in these studies that are concluding now. Beyond identifying the problem which I have to do so far as Irish Steel are concerned, it would not be proper for me to go into details as to how the problems are to be solved. That is something for which we are awaiting the report of an expert group and upon which the responsible Minister, the Tánaiste, will be making a presentation to the Government in the very near future. I hope the Senators will  understand that that is as far as I can go on that subject.
Senator Conway asked how we could reduce the costs of steel production to ensure that they are able to compete. The most obvious way is by increasing production. If they could do that their overheads would be spread more widely and that would reduce costs. They are only at 40 per cent of their capacity at present.
Senator Smith referred to quotas. They produce 130,000 tons of steel each year, which is just about covered by their quotas. The aim is to produce 250,000 tons. The technical capacity is 330,000 tons, but in the present depressed market they are not over-optimistic about reaching that figure. If they could produce 250,000 tons they would be able to make a profit. They would be able to pay back some of the accumulated debts. If all goes according to plan, the consultants expect that Irish Steel should make an operating profit this year. By this year I mean the year beginning two days ago and running for the next 12 months. Their year runs from July to end June. I indicated that last year they made a loss but it was considerably less than it was the previous year, which in turn was less than the previous year. The trend is downward and we hope that during this year they will cross the profit barrier and make an operating profit.
That is not just brave optimism which Ministers are wont to engage in when asking the Oireachtas to agree to the redemption of substantial amounts of debt or when people are likely to say that if they did so badly in the past as to incur these debts, what basis is there for being optimistic that things will improve almost immediately as if by some magic process? This prediction has been given by independent consultants who studied Irish Steel on three separate occasions in the last three years. They have indicated that if all goes well and if we get the quotas, the company will be in a position to make an operating profit.
This Bill will enable them to remove the largest single component in their losses in the last accounting year, which was interest on past debt. That has been  converted into equity. The company will not have to meet that interest bill, but the taxpayer will have to meet it. In the end as the taxpayer guarantees the company it amounts to the same thing, because if the debts were left to the company it would close and the debts due, including interest, would have to be met by the taxpayer as long as the guarantees continued.
Senator Magner asked what would happen next year. If instead of making that operating profit, as I hope they will, say they made a loss of £½ million they would be in the same position as any other commercial company which made such a loss. If their bankers left it was a temporary phenomeon and that next year they had all the ingredients necessary to turn that loss into a profit, then they would get credit and be able to continue in business. If, on the other hand, their bankers felt the loss indicated an underlying problem which they were not capable of eradicating, they would not get credit and they would close. It is the same as what would happen with any other enterprise operating on its own in business today. That is the position Irish Steel will be in next year if things turn out that way.
We have done all we can to put the company on a solid foundation so that their bankers can have confidence in them and so that the company can continue to produce and reach their high level of capacity. This is a new mill and, comparatively speaking, is among the most technically efficient in Europe. Apart from the cost of energy and the cost associated with producing at less than overall capacity, their costs are low by comparison with some of their competitors. Technically it is a more cost effective mill if it were not for outside costs and interest costs. So there is a basis for being hopeful.
Senator Smith and others were concerned that by giving this money to Irish Steel we were saying that if they got into trouble again they could come back and we would give them more. That is not the case, because when this Bill has been passed no further assistance can be given.
Mr. J. Bruton: I am not sure when he got it or whether it is from the present mill or the old mill. There is a danger in giving examples like this without giving dates. We could be tarring the modern mill with an image which related to the previous production facility.
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