I move: "That the Bill be now read a Second Time."
This Bill fulfils the promise made by Fianna Fáil to set up a new State sponsored company to operate forestry on a commercial basis. It reflects the great importance which the Government attached to forestry in their Programme for National Recovery. That programme specified a firm action plan for forestry development which is being successfully implemented.
The record national planting target of 11,000 hectares in 1987 has been achieved. The target has been further increased to 13,000 hectares in 1988 and this will also be achieved. In fact, I expect that total planting this year will reach 14,000 hectares, comprising 10,000 hectares of State planting and 4,000 hectares of private planting.
The programme also set a target of increasing wood production in 1987 by 50,000 cubic metres to 1.25 million cubic metres. In fact, the targeted increase was doubled and a total of 1.3 million cubic metres was produced. This generated receipts of £19 million, an increase of 11 per cent over projections and 16 per cent greater than receipts in 1986. This again is an all time record which I expect will be broken this year when timber sales are expected to exceed £20 million. Sales will continue to increase dramatically in future years, given the fact that output from State forests is expected to reach 2 million cubic metres in 1993 and 3 million cubic metres by the year 2,000.
The major drive which I initiated to increase the level of EC funding for forestry has already had an impact. In January last I announced that we had been granted a total of £8.1 million from the ERDF for road building in State forests. The grants are to finance about 55 per cent of the £15 million cost of constructing 358 km of new forest roads and the upgrading of 107 km in the three years 1986-1988. This is the first time that the ERDF has injected substantial resources to mainstream forestry activities.
I am particularly pleased that my efforts in this area have borne fruit so quickly. Prior to this, Irish forestry had received only some £4 million in EC grants since we joined the Community in 1973.
This achievement, together with my earlier announcement of European Investment Bank loans of £27.8 million, is a further indication of the Government's commitment to capitalise fully on potential EC funding for Irish forestry. It is clear that substantial injections of such funds will be necessary in the future.
As part of our drive to increase European awareness of the case for Irish forestry, I have invited Commissioner Andriessen to Ireland in July and I am delighted to say that he has accepted the invitation.
This year I have been able to launch three new initiatives on private forestry grants:
The western package scheme, formerly only aimed at the poorer areas in the west, has been extended to all disadvantaged areas in the country. EC funding has been increased from 50 per cent to 70 per cent.
A new farm forestry scheme has been launched, aimed at full time farmers, which increases the scope and level of grants available. The EC will reimburse the State 25 per cent of grant expenditure.
A new compensatory allowance, (headage payment), scheme will allow farmers, who are in receipt of headage payments in respect of livestock, to continue to receive those payments if they afforest part or all of their land. This scheme will be 50 per cent funded by the EC.
The programme for economic recovery was also very much concerned to achieve an upturn in the level of employment in the forestry sector.
The volumes of timber now coming on stream and the increased planting rates generated by recent initiatives have provided a springboard for new employment in forestry. A great deal of this new employment is, of course, in the private sector and in the establishment of new contracting firms engaged in planting, harvesting and, indeed, all aspects of forestry.
I have no doubt that the potential for future employment is great and it is worth nothing that forestry in particular is one area which literally plants the seeds of employment for the next generation. The record planting levels of today will provide many jobs over the next 40 years and beyond in forestry and in downstream industries.
Obviously, a significant point of our programme is the Bill before the House today which will bring about the transformation of the Forest Service into a new commercial company. This new enterprise is designed to meet the challenges of the future and to capitalise on the investment made by successive Governments since the establishment of the State.
The history of Irish forestry over that period was marked by the necessity for State intervention, in the absence of any significant private sector investment, to counter the destruction of previous eras and to provide for self-sufficiency in an essential national asset, the raw material of so many industries. Successive Governments throughout the period reaffirmed that goal and set national forestry targets. Regrettably, it has not always been possible to maintain aspirations in this area and, in more recent years, support for forestry has been somewhat intermittent. This recent period in its history has also been marked by successive revaluations of State forest policy and the organisational structure required for future forestry development. In addition, three has been increased emphasis on the promotion of private forestry, which has developed substantially in the past three years, on the basis of extremely generous grants from public funds.
So far as the structure of the Forest Service is concerned, I do not think it necessary to recite in detail the various arguments that have been adduced in recent years. It is now universally accepted that the full potential of forestry is constrained by its location within a Government Department and that, in order to operate successfully in a commercial environment, it is necessary to free it from existing rigidities while at the same time imposing clear cut obligations on it to operate on a profitable basis. The Government consider that the best option is to establish a new State-sponsored body in the form of a company registered under the Companies Acts with commercial goals and carrying on its operations in the same way as a private sector company. Members of the House will be aware that the Forestry Review Group which reported a few years ago recommended that the Forest Service should be transformed into a Commission somewhat on the lines of the Revenue Commissioners but I do not find convincing the arguments which lead to that conclusion. Considering the objects and purposes which we now have in mind for this enterprise I have no doubt that the best format to adopt is that of a company under the Companies Acts.
It has also been evident for some time that the internal structure of the Forest Service will require alteration to bring it more into line with the objectives of commercial operation. It must be said that this is not a problem unique to Ireland and that many similar State forest organisations in other countries have gone, or are going through, the same process of change. The decision on appropriate structures will be a matter for the new company and is likely to involve major organisational change. I will certainly be concerned to ensure that the company operates to maximum efficiency and that its structures and operational practices are consistent with that aim.
In this period of major change I want to pay a warm tribute to the staff for their efforts and achievements over the years which have led to the development of a forest estate which has expanded from practical extinction to its present size of nearly 350,000 hectares. In silvicultural terms, Ireland has been shown to have a particular advantage over our European neighbours in that our forests yield, on average, a third more timber than British forests and more than twice that of other European forests.
Our proximity to the large market in the United Kingdom, which imports more than 90 per cent of its timber requirements, is also a major advantage. The EC as a whole imports approximately 75 per cent of its requirements. I think it can be said that the stage has now been set for a major impact on this market by Irish forestry in the years ahead. The plentiful home produced timber resources will also provide the opportunity for downstream industries to capitalise on these near markets.
As of now about 50 per cent of Irish forests are producing saleable timber. In 1988 the Forest Service will market 1.5 million cubic metres of timber; by 1993, as I have already said, this will reach two million cubic metres and by the year 2000, three million cubic metres. These figures reflect firstly the long-term nature of the State's investment in forestry, and secondly, the structure of the State's forest estate and in particular the fact that a large percentage of that estate is under 20 years old at present. The investments of the forties, fifties and sixties are now beginning to come to fruition as, indeed, will the record current planting levels benefit generations to come. It can truly be said that Irish state forestry has reached a take off point.
I mentioned earlier that a major feature of Irish forestry in the past was the necessity for State initiatives to revitalise the forest industry. The net result of these initiatives is the predominant position of the State in forest ownership relative to other countries in Europe. I am pleased, however, to note that the promotions of the recent past in encouraging private planting have now begun to achieve success. To achieve further momentum on this front we have exerted a great deal of pressure in Brussels to have additional resources provided. The new schemes currently being introduced are aimed at encouraging those in marginal farming and in receipt of headage payments to convert their land to afforestation. The response to these new programmes, along with the existing grant scheme and the western package scheme, will provide a strong impetus for private afforestation throughout the country.
I have sought and received wholehearted support from a range of new forest companies, the farm organisations, co-operatives and ACOT in implementing a dynamic private forestry programme which will reach a record 4,000 hectares this year. My technical staff who, because of their vast experience in forest establishment are especially geared to this new momentum, will continue to provide free expert advice to farmers, individuals, companies and others establishing and tending new plantations. We may not see the final market results for a long time to come but if we are to reap in the future we must sow now. The policies and strategies of the Government, as reflected in this Bill, are: to establish a commercial company to implement the State's afforestation programme; to allow the company, freed from existing Civil Service constraints, to exploit all available opportunities, to conduct its business efficiently and economically, as if it were a private sector company; to provide it with the staff and resources necessary to achieve these aims; and to monitor its performance critically each year, having regard to the various targets set for it.
Ministerial responsibility in regard to the company will essentially be concerned with establishing policy and monitoring performance. Enormous amounts of public funds have been invested by successive generations of Irish taxpayers. We will be looking to the new company to maximise the value of these investments and provide a growing financial return to the State as soon as possible.
I now come to the Bill, which is divided into three parts. The first part, comprising sections 1 to 8, is concerned with general provisions and I see no need to refer to them further at this stage. The second part, comprising sections 9 to 38, deals with the establishment and administration of the company, and the third part, comprising sections 39 to 53, contains transitional provisions.
Part II, which comprises sections 9 to 38, deals with the establishment and administration of the company. Section 9 requires the Minister for Energy, whom hereafter I will refer to as the Minister, after consultation with the Minister for Finance, to register the company as a private company under the Companies Acts and to nominate a vesting day or start-up day. Section 9 further provides for the possible re-registering at some future date, if necessary, of the company as a public limited company, subject to the consent of the two Ministers.
Section 10 sets out the name of the new company — Coillte Teoranta or the Irish Forestry Board Ltd. — and provides for the authorised share capital of the company, at £1 billion. This figure is an inclusive one representing the aggregate of the value of the assets to be transferred to the company together with further share issues which may be approved.
Section 11 requires that the memorandum of association of the company must be consistent with the Bill when enacted, and be approved by the Minister and the Minister for Finance. These documents are at present being drafted and it is my intention that their completion will not delay the registration of the company.
Section 12 outlines the principal objects of the company to be included in its memorandum of association. These are: to carry on the business of forestry and related activities on a commercial basis and in accordance with efficient silvicultural practices; to establish and carry on woodland industries; to participate with others in forestry and related activities consistent with its objects, designed to enhance the effective and profitable operation of the company, and to utilise and manage the resources available to it in a manner consistent with the above objects.
Section 13 specifies the general duty of the company in relation to generation of revenues, conduct of its business and environmental and amenity matters. The objective is that the company will pay its way as soon as possible. Financial targets will be formulated, in consultation with the company and with the consent of the Minister for Finance, under section 38 of the Bill. It is my intention that these targets will not be mere formulations of words and numbers.
Section 14 provides that, in recognition of the fact that it holds a major national asset, the company must agree its annual programme of sales of land and timber with the Minister. These provisions should not be looked at as providing a mechanism for interfering with the business of the company. Their primary intention is to ensure that an adequate planting programme, commensurate with the endowment given to it by the State, is maintained by the company and that, furthermore, no tendency to flabby management is encouraged by allowing unacceptable asset disposals.
Section 15 provides that the articles of association of the company must be consistent with the Bill when enacted and must be approved by the Minister and the Minister for Finance. The articles must contain specified provisions about the number of directors, appointment and remuneration of directors, and the appointment of auditors. The section also requires the company to set up negotiating machinery with staff, and to seek the agreement of the relevant Ministers for the acquisition or establishment of a subsidiary and for investments over an aggregrate of £250,000 in other undertakings. Under section 16 no changes can be made in the memorandum or articles of association without the prior approval of the Ministers.
Section 17 requires the company to issue shares to the Minister for Finance in consideration of land and other property being transferred to it under sections 39 and 40.
Sections 18 to 23 contain provisions about shares in the company, and these are fairly commonplace. Under section 18, one share must issue to the Minister, and under section 19 one share must issue to each of the subscribers to the memorandum of the company, the cost to be borne by the Exchequer. Section 20 provides that the Minister for Finance may exercise the normal rights of a shareholder.
Section 21 contains a provision allowing the Minister for Finance, after consultation with the Minister, to sell his shares in the company. This is a feature of the legislation relating to other State companies. Under this section the Minister for Finance may also transfer one of his shares to any person to ensure there is always the required legal minimum number of members of the company.
Section 22 requires those persons who hold shares in the company — as subscribers to the Memorandum of Association under section 19 or to whom a share is transferred by the Minister for Finance under section 21(1) — to pay any dividends received to the Minister for Finance for the benefit of the Exchequer and to transfer the shares in accordance with his instructions.
Section 23 provides that dividends or other money received by the Minister or the Minister for Finance in respect of their shares, or repayment of or interest on advances received by the Minister for Finance from the company, will be paid into the Exchequer.
Sections 24 and 25 deal with borrowing by the company. Under section 24, the approval of the Minister and the Minister for Finance is required for borrowing for capital purposes. An overall limit of £80 million is proposed, which will cover the company and any subsidiaries it may have. Section 25 empowers the Minister for Finance to guarantee borrowings up to an overall limit of £80 million for the company and any subsidiaries.
Section 26 enables the Minister for Finance to provide an amount not exceeding £100 million for capital works either through share subscriptions, advance or a combination of both.
Section 27 enables the Minister for Finance to provide an amount not exceeding £3 million to the company for working capital in return for shares.
Section 28 contains a standard provision that moneys payable by the Minister for Finance under sections 25, 26 or 27 will be advanced from the Central Fund.
Section 29 enables the Minister for Finance to make a total of £30 million available to the company for current expenditure, the moneys to be provided by the Oireachtas.
Sections 30 and 31 deal with the furnishing by the company of audited accounts and annual reports, which the Minister must lay before the Oireachtas. Both sections also require the provision of any special accounts or information, for instance, on cost effectiveness, as the Minister may request.
Section 32 provides for the disclosure by directors of certain interests. Section 33 provides that unauthorised disclosure of confidential information by directors, staff or advisers of the company will be an offence. Section 34 contains the usual prohibition on a Member of either House of the Oireachtas or of the Assembly of the European Communities being a director of the company, and further provides that directors or persons employed in the company will be seconded without pay on election.
Section 35 provides for the appointment of the chief executive of the company: the first appointment will be by the Minister following a public competition but subsequent appointments will be made by the directors of the company.
Section 36 requires the company to have regard to Government or nationally agreed guidelines or Government policy on the matter of conditions of employment, pay and allowances of its staff.
Section 37 empowers the Minister to make bye-laws relating to access to or use of the company's land, contravention of which will be an offence.
Section 38 provides that the Minister, with the consent of the Minister for Finance, may require the company to comply with directions in relation to Government policy on forestry or related activities, the use or maintenance of its property for a particular purpose, or the provision of services or facilities. The intention is that such powers would be exercised in the public interest, for example, to require the company to maintain or provide amenity facilities. Provision is made for compensation to the company in appropriate circumstances. The section also empowers the Minister to formulate financial targets for the company, including the payment of dividends, with the consent of the Minister for Finance. Directions under this section will be issued by the Minister by way of order, if the company so requests.
Part III of the Bill, comprising sections 39 to 53, includes a number of transitional provisions applicable to the company.
Section 39 provides for the vesting in the company from vesting day of the forestry land and buildings vested in the Minister. Section 40 provides for the similar vesting of other property. All rights and liabilities of the Minister under any contracts or commitments made by him or by others on his behalf in relation to the functions being assigned to the company will be transferred to the company under section 41. Examples would be contracts for the purchase of equipment or commitments to sell timber. Section 42 provides that the vesting in the company of property in accordance with the Bill will be exempt from stamp duty.
Sections 43 and 44 provide for safeguards for the staff to be transferred to the company from the Forest Service in relation to pay, conditions of service and superannuation; these reflect standard practice on the transfer of functions from the Civil Service to a new State-sponsored body. Section 44 also requires the company to prepare superannuation schemes for the grant of pensions, gratuities and other allowances for staff, again a standard item in the case of pension schemes of State-sponsored bodies.
Section 45 empowers the Commissioners of Public Works to undertake work at the request of the company. The commissioners have traditionally undertaken work for the Civil Service, but while working for the company will not be regarded as a State authority for the purpose of the Planning Acts. Section 46 provides that rateable property vested in the company will be subject to rates from the next following financial year.
Section 47 provides that, as from vesting day, claims in respect of loss or injury, settlement of agreements or enforcement of judgments relating to functions transferred to the company will lie against the company and not against the Minister, any other State authority or the State. It further provides that claims by the Minister, any other State authority or the State relating to transferred functions will be proper to the company. Section 48 provides for the continuation in the name of the company, rather than the Minister, any other State authority or the State, of legal proceedings relating to transferred functions, from vesting day. Section 49 provides that, in the case of judgments given against the company which a person is unable to enforce, any amount not recovered can be entered as a debt due against the Minister for Finance, who will be entitled to recover the amount from the company.
Section 50 provides for the continuation in the company's name of notices, certificates etc., relating to transferred functions and still valid on vesting day. Section 51 similarly provides for the continuation in the company's name of licences and permissions granted by the Minister in relation to land or property transferred to the company.
Section 52 allows for the application to the company, in relation to buildings to be transferred to it, of the consultation procedure applicable under the Planning Acts.
Section 53 contains a number of transitional financial provisions which will arise from the fact that it will not be possible to make a clean break on vesting day; there will, for example, be money owing to the Minister which is received in arrears by the company, and money received in advance by the Minister for goods or services to be provided by the company.
That brings me to the end of the sections of the Bill, but there are also two schedules. The First Schedule contains particulars of repeals of parts of certain enactments and the Second Schedule contains particulars of amendments of parts of the Forestry Act, 1946, mostly relating to penalties for offences relating to tree felling.
Having summarised the contents of the Bill, I now wish to comment in some detail on the financial arrangements proposed for the company. Forestry is, by its very nature, a long term investment. The normal pattern of wood production from conifer plantations is for thinnings to commence when the stand is about 20 years old. Subsequent thinnings occur at about five year intervals until the plantation is clearfelled at 40 to 50 years and replanted. The clearfell timber is, of course, the more valuable crop.
As more and more of the State's forest estate reaches maturity, receipts from sales of timber are increasing: These are expected to exceed £20 million in 1988. However, the point has not yet been reached where receipts from timber sales and other miscellaneous activities will cover the cost of the Forest Service, at present £55.5 million. The new company, therefore, will not reach a break-even position for some time to come. It is important, therefore that, during the early years of its operation, they receive substantial State financing and that such financing be made available mainly through share subscriptions to avoid the company being lumbered with interest charges, which would have difficulty in servicing on loan financing. Nevertheless, the Government expect the company to reach, in these circumstances, a cash break-even position on its operations within a reasonable number of years and to generate substantial profits after that.
With this in mind, the Government have decided on the following financial arrangements. It is proposed to transfer to the company the State's assets in exchange for shares of an equivalent nominal value. The assets involved will be the land, whether planted or not, held by the Minister for forestry purposes and other property such as buildings, machinery, stock, etc. The value of these assets will be agreed with the Minister for Finance.
The company will be involved in significant capital investment in complying with annual State planting targets and in maintaining their existing estate. It will be difficult for the company to arrange financing for such a programme and for this reason the Bill contains enabling power to make available from the Exchequer not more than £100 million for capital development, either in exchange for shares in the company, or by way of loans, or both. The actual amount to be provided and the method of financing will be decided by the Government in the light of the development plans submitted by the company.
The receipts which the company will generate from the sale of timber will contribute to a large part of their current expenditure requirements. The company will be expected to further improve their position by more cost-effective operations, imaginative marketing and expansion of their profitable business. This will take time, and the Government has provided enabling powers for the Minister for Finance to make available grants of up to a total of £30 million to the company for current expenditure during their first four years. Again, the actual amounts provided in any year will be decided in the light of the company's development plans. It is further proposed to make an amount not exceeding £3 million available for working capital, in return for its equal value in shares.
To sum up, therefore, in setting up the company the Government are conscious that State forestry is not yet self-supporting, and are committed to providing a degree of financial assistance for some years.
It is my belief that these financial provisions are not ungenerous, especially bearing in mind the fact that the assets are being transferred to the company without any obligation to repay any part of the expenditures which were incurred in their creation. In availing of the powers sought in these provisions, it will therefore be my intention to adopt a vigorous attitude to any proposals submitted by the company. While we do not want to cripple them with excessive debt burdens, we must also guard against an even worse situation in which the company are, in effect, relieved of the obligation to conduct their affairs on the basis of maximum private sector efficiency, because we are too easy going in the provision of further State funds. As I have said previously, the taxpayer has already put enough into forestry and we now expect the new company to put their inherited house in order and pay dividends to the State on this investment. I will conclude on this point by saying that, although there is provision for it in the Bill, I will critically examine any proposals for the guaranteeing of the company's loans. If it is necessary, we will have to put up with it but I will be very anxious to avoid anything which might give the impression that the State has any responsibility for the financial outcome of the company's activities. The company must stand on their own feet, conduct their business in accordance with the requirements of the market place, and generate profits for their shareholders who have put so much into it.
The legislation we will be considering will change fundamentally the structure and future of forestry organisation. I expect the company to build on the strengths they are inheriting and, with the more favourable environment and greater freedom they will have, to achieve a more rapid development of forestry than was practicable within the confines of the Civil Service, which were often required to carry on their activities otherwise than on the basis of sound business principles. The company are being given a major national asset. The Government expect them to make the optimum use of that asset and to maximise the returns on forestry.
It is clear to me from my examination of forestry affairs, both at headquarters and in the field, that there is very considerable room for organisational reform, for the elimination of unwieldy and costly procedures, for the adoption of better practices in the forests, for the introduction of new arrangements which will reduce outgoings on purchases and increase income per unit of sales, and for the identification of the optimum utilisation of the land and other assets. There is a need, in general, for the creation of an entirely new culture in relation to forestry which will have much less to do with outdated procedures and much more to do with running an efficient operation and giving the people of Ireland a better deal for their money.
I am glad to note that the staff have given their support to these objectives and I look forward to their continuing commitment in this respect. Bearing in mind that due to traditional constraints it was not possible to give sufficient attention to these things for a long time past, I believe that it should be possible to achieve very significant improvements in the near future. I will, therefore, be throwing down the gaunlet to the chairman, the directors, the chief executive and the management team as a whole to deliver the goods in accordance with the charter I am asking the Oireachtas to provide for the company. I will not accept that this is just another semi-State body. I expect far more than that and if I do not get it I will give the board a very hard time. There are useful provisions in this Bill in regard to performance requirements and achievement of targets and it is the intention that the powers given in these respects to the Ministers for Energy and Finance will, in association with the financial provisions of the Bill, be used in such a fashion as to assist in bringing about the radical changes which are necessary.
I commend this Bill to the House but before concluding I would like to make clear that I will be glad to consider any proposals for its improvement which are put forward for consideration on Second Stage, or when we have the opportunity to look at the provisions in greater detail on Committee Stage.