Seanad Éireann debate -
Thursday, 19 Jul 1979

Vol. 92 No. 15

British & Irish Steam Packet Company Limited (Acquisition) (Amendment) Bill, 1979 [ Certified Money Bill ]: Second and Subsequent Stages.

Question proposed: "That the Bill be now read a Second Time."

Minister for Tourism and Transport (Mr. Faulkner)

The enactment of the present Bill is necessitated by the need to make provision for the capital and borrowing requirements of the B & I Company in respect of a further passenger car ferry. As announced by the Taoiseach on 18 May 1979 the Government have decided to authorise the B & I Company to acquire a fifth passenger-car ferry from Verolme Cork Dockyard to be followed in due course by an order from Irish Shipping Ltd.

Construction of the new ferry for the B & I will begin without delay and the new vessel is expected to be available around mid-1981. It is expected to cost around £21 million on current indications. This represents a very sizeable investment, reflecting the dramatic worldwide escalation in the cost of new ships in recent years. The cost of acquiring new ships is a major problem nowadays for shipping companies. Over the past ten years, the cost of new tonnage has quadrupled. This places an insuperable difficulty in the way of financing new tonnage out of earnings. I am satisfied that the B & I Company could not finance this new vessel wholly by loan capital and that an Exchequer contribution in the form of additional equity is essential. It is proposed, therefore, to allocate part of the additional Exchequer equity provided for in the Bill towards the cost of the new ferry. The balance would be financed out of borrowings by the B & I Company and in that connection the proposed increase in the State guarantee limit will provide for any guarantee which may be required.

The B & I were acquired by the State in 1965 mainly to secure a greater measure of Irish participation in cross-channel services in the interest of trade and tourism generally. I believe that the company have gone a long way towards fulfilling this objective, despite the extremely competitive conditions prevailing on the Irish Sea. The company now carry a significant proportion of all passengers, cars and freight moving on cross-channel sea services and are thus in a strong position to influence the competitiveness and the quality of service to Irish tourism and to Irish exporters and importers. The company's well-established freight services to Europe have also assumed a greater significance with our membership of the European Community. If the company are to be enabled to continue fulfilling this obligation, they must continue to offer and maintain the best standards of service for passengers and freight. Modern, fast and efficient vessels are a fundamental requirement for this purpose. The company's existing ferries, apart from the new Connacht, were acquired as part of the extensive modernisation undertaken by the company in the late sixties. These existing ferries will, of course, see the company into the eighties but forward planning is essential at this stage, taking account of the need to renew the company's fleet during the eighties. Replacement of the company's earlier ferries could take several years to complete. It is necessary in these circumstances to initiate the process of fleet renewal now and the provisions of the present Bill will enable the first concrete step to be taken in that direction.

The fleet renewal programme forms an important element of the company's future development plans. The implementation of these plans will gear the company to exploit the market opportunities of the eighties and provide for the expected growth in traffic.

Features of the company's plans, apart from fleet renewal, include the introduction of a Jetfoil Service between Dublin and Liverpool early in 1980 and a new car ferry service on the Southern Corridor between Rosslare and Pembroke. The company are also planning additional roll-on/roll-off freight capacity on the Irish Sea, which the company pioneered in the sixties, and which is now a significant growth area.

The company will also be providing additional capacity on their continental services, a market which is also showing considerable growth potential following Ireland's entry into the EEC.

The implementation of these plans will enable the company to create an additional 400 jobs within the organisation with a considerable number of further job opportunities also arising in other areas associated with the company's developments.

The report on the B & I by the Joint Oireachtas Committee on State-sponsored bodies is a timely document. The Committee made a number of very interesting suggestions on a number of points and I have arranged for my Department to examine these critically in consultation with the B & I. The usefulness of the Committee's report to my Department and the B & I Company is enhanced by the fact that the Committee's deliberations represent an independent look at the operations of the B & I. Many of the points made by the Joint Committee in relation to such matters as the future rate of return on the company's investments and the funding of their future development plans are constructive and of direct relevance to the company's future development plans. There is no doubt that the company's future development proposals, including fleet renewal, will call for significant capital. The extent to which the B & I Company themselves will be able to fund part of their future capital requirements from their own resources will depend on the company's profit-making over the next few years. My objective is that the company — through a combination of loan finance and accumulated profits — should aim at the highest possible level of self-financing.

There has been a dramatic expansion in the activities of the B & I Company since their passage into State ownership in 1965. 1978 was the company's most successful year to date. Passenger, freight and car carryings rose to record levels. A record net profit of £1.35 million was achieved, although the company consider that this could have been over £2 million but for net losses of nearly £900,000 caused by labour disputes outside the company's control at various ports to which the company operate services. The continued development of the company and the provision of new vessels and ancillary equipment to that end is important in the furtherance of national development. Apart from the essential services which they operate in the interest of trade and tourism, the company activities are of very considerable direct benefit to the economy. For example, 65 per cent of their turnover is earned in the form of valuable foreign exchange while 71 per cent of their expenditure is made in Ireland thus maximising the benefits to the economy. They provide employment for nearly 2,000 people and their total annual payroll is over £10 million. Between 1968 and 1978 they paid £31 million to Verolme Cork Dockyard for the construction of five new vessels and the conversion and overhaul of others. The present car ferry order will provide full employment at Verolme Cork Dockyard for the next two years.

The provision of the Bill will provide a basis for the continued development of the B & I Company. I accordingly recommend the Bill to the House.

Mr. Markey

The provision of extra capital and borrowing requirements for the B & I seems to be a necessary undertaking on the part of the Government due to the commitment already made in regard to the proposed passenger car ferry. However, because of the present tourist situation and as so much of the business of B & I has consisted of the transport of cars and their passengers, particularly from the UK to here, I wonder what the long-term prospects of the company are? Will this mean a greater effort by B & I to make progress in other fields, namely, in the transport of freight? A controversy arose in the Dáil with regard to the suggestion that the B & I should be denationalised. I studied that debate and the report of the Joint Committee which looked into the B & I with particular regard to the proposal in relation to the car passenger service. It appears to me that the criticism in the Dáil, and the volume of questioning at the meeting of the Joint Committee with B & I personnel, was justified to a certain extent.

However, on reading the report of the Joint Committee I got the impression that the questioning of the B & I personnel was a little light. It appeared that many of the questions were known in advance — I do not know if that is standard procedure in the operation of that Joint Committee and I do not know whether the necessary expertise was available to the Joint Committee to help in the preparation of questions to be put to B & I personnel. The picture painted in that report does not come across as rosy as that portrayed in the Minister's speech with regard to past and future operations of the company. Perhaps a little more probing by the Joint Committee would have enlightened us as to the future viability of the company. That was the second report of the Joint Committee I read and it appeared to me that the Members of that Joint Committee are facing a problem in the questioning of personnel of semi-State bodies. They appear to face a difficulty in regard to the social obligations of the operations of semi-State bodies as against the commercial role which they should also follow. The Joint Committee will find it difficult to get a true answer to that question. They will also have a problem arriving at a proper solution. They will have difficulty in deciding whether there should be proper segregation between those matters and which should take priority.

An Cathaoirleach

The procedures of the Joint Committee do not arise on this Bill.

Mr. Markey

They arise in connection with the B & I proposal before the House because that company also must face social and commercial obligations. I should like to know where the division between those obligations lies and if such a division should be allowed to exist.

An Cathaoirleach

The report of the Joint Committee is relevant but the procedures of that body are not.

Mr. Markey

I accept the ruling of the Chair. I question the criteria which apparently somebody applies with regard to the social role of the company. Have the relevant Departments certain criteria in determining the success or failure of such semi-State bodies? For instance, in the case of the B & I is the criterion for success the return on capital employed or is it the number of jobs provided? Is the criterion the spin-off the company can create in other sectors of the economy, the creation of jobs elsewhere? We must decide that question sooner or later. We all accept that the predecessor of that company was, to all intents and purposes, a lame duck. When the State took it over it was developed by the State pumping capital into it. I acknowledge that it has been turned into a relatively profitable enterprise but we cannot continue as a nation taking over enterprises that are not profitable when they run into difficulties and nationalising them because the view will continue to be expressed that as it is a semi-State enterprise it is performing a social obligation as well as playing a commercial role. When that happens it is very difficult to determine which is the more important and which should take precedence. We have come up against the question in relation to other semi-State bodies, like the B & I, that when the social role assumes precedence over the commercial role more money must be pumped into them. Whether that is the wisest course or not in the long term is something I cannot decide.

In my view there was some justification for the attitude adopted by a Member in the Dáil in regard to the operations of the B & I. He was critical, having read the report of the Joint Committee which investigated that company. Having read the same report, I believe his criticism was justified. I am not saying that I agree with the suggestion put forward by that Deputy as being the option available to the Minister with regard to the future of the company. The objective of the company in 1965 was to provide and develop a modern, efficient, profitable, national and comprehensive surface transport system to and from Ireland, glamorous words and worthy ideals, a worthy objective for any company, semi-State or otherwise. The performance of the company last year in carrying almost 750,000 passengers and 150,000 cars to and from Ireland is highly commendable, but it is my view that the Joint Committee should keep a close eye on its operations. The company has played a worthy part in the heavy freight transport system and pioneered the first roll-on/roll-off container operation here. It has managed to increase its traffic over the years by 10 per cent annually and admits that its return on capital is, unfortunately, not adequate for the amount of investment involved. I am not saying that the company should be condemned or criticised out of hand but they should work on that problem. I would be interested to hear a comparison between the employment figure within the B & I for this year and, say, ten years ago. I accept the commitment of further capital investment to the company although I have some general reservations about the operations of the company, particularly with regard to the criteria that must be applied with regard to its social and commercial role and that of other semi-State bodies.

Ruairí Brugha

I support this Bill. In a sense I suppose it is something of a relief to be dealing with a Bill in relation to a public semi-State body paying all its workers and showing even a modest profit at the end. Certainly this is an area in which one can feel a little more optimistic and have greater confidence in the future. That is the keynote of the Minister's proposal in providing the additional capital in time to enable the B & I to continue to develop. The directors and workers of B & I are to be complimented on the progress of the company since 1965; at least it is one good story. It may be, of course, that the existence of competitors in the same business is of considerable help in ensuring the success of a company like B & I. Nevertheless, as a public company, it is showing signs of success and we should not be too backward in saying so. It is a development along the right lines.

Dr. Whitaker

I think the B & I Company give a reasonably good service. That is not to say, in spite of last year's profit of £1.35 million, that it is in an exceptionally sound financial condition. This point seems to be of particular relevance when they are contemplating now, borrowing or acquiring through share capital issued to the Minister, an extra £25 million of capital which, at current rates of interest at any rate, is going to be exceedingly difficult to remunerate. On a rough estimate £25 million of new capital acquired today at a cost to somebody, the State or the company itself, of say 13 per cent, requires £3 million of profit just to remunerate it. That sort of profit is certainly outside the compass of the company's experience to date. Another aspect of that is that, if the State puts in equity, as the Minister says it must, and as the financial condition of the company makes imperative, to the extent of £15 million and that equity is not remunerated by way of dividend, that itself is the equivalent of giving anything between £1½ million and £2 million of annual subsidy to the company. This may be desirable for various reasons. But I would join a previous speaker in hoping that the criterion that would be kept foremost in viewing the operations of the B & I is the financial one rather than some hotch potch of social criteria which I do not think are really relevant in this case. The company exists to provide an efficient transport service at the lowest possible cost and there should be continued insistence on its performing that role.

I should like to ask the Minister, in the context of capital costs — such an important aspect of the finances of the company — whether the new ferry was the subject of invitation of tenders from various shipyards or whether, as seems to be implied by his opening speech, there was merely a Government directive issued to the B & I to give the contract for the new passenger car ferry to Verolme Cork Dockyard. What I am really asking is whether the expected cost of around £21 million for a ship supplied by the Verolme Cork Dockyard is a competitive price. If it is not, then some social consideration is entering into this because more than the economic cost is being paid for the ship and a bigger subsidy requirement in future, at the expense of public funds, is being written into this contract than if the company were completely free to decide where to buy the new ferry on purely commercial considerations.

Minister for Tourism and Transport (Mr. Faulkner)

I should like to thank Senators for the manner in which they received the Bill and for the useful comments and points they made in relation to it. The provisions of the Bill will provide a solid basis for the further expansion of the B & I Company. The progress of this company since they were taken into public ownership in 1965 is a vindication of the Government's decision to acquire the company at that time. The continued development of the company is important — and I would emphasise this — both socially and economically. The company's existing ferries, apart from the Connacht, were acquired as part of the company's fleet when the modernisation plans were undertaken in the late sixties. These ferries will see the company into the eighties but forward-planning is essential at this stage. The provisions of this Bill constitute the first concrete steps that we are taking in that direction. I might point out that the B & I operate under extremely competitive conditions which prevail on the Irish Sea. To retain and, if possible, to improve their share of the market, shipping companies must continue to offer the best standards of service for passengers and freight. Modern, fast and efficient vessels are a fundamental requirement in this respect. There is no doubt that the future development of the B & I will involve a very considerable challenge to the company. It will call for a sustained effort on the company's part, aimed at raising profitability. The level of the company's profits over the next few years will determine the extent to which the B & I will be able to fund part of their future capital requirements from their own resources. My objective for the B & I is that the company, through a combination of loan finance and accumulated profits, should aim at the highest possible level of self-financing.

Senator Markey referred to the Oireachtas Joint Committee on Semi-State Bodies. Whether or not the Committee's questioning was incisive I feel that the Committee's deliberations represented an independent look at the operations of the B & I. That enhances the usefulness of the Committee's report to my Department. Many of the points made were constructive and relevant to the company's future plans. To be quite frank about it, I was wondering when somebody was going to try to rescue the situation as it pertained in the Dáil; I must say the Senator did a reasonably good job. In so far as the B & I Company are concerned let me repeat that they made a profit last year of £1.35 million. They employ a couple of thousand people and are of very considerable assistance to tourism. They demonstrated a social commitment in having ships built in Verolme Cork Dockyard Ltd. and their industrial relations are excellent. Taking everything into consideration, they are a very worthwhile and progressive company.

Senator Whitaker referred to the fact that it would be difficult for the company to remunerate their capital and that the aim should be to provide an efficient transport service at the lowest possible cost. The aim is, of course, to provide an efficient service at the lowest possible cost, but we do not rule out the social aspect. Senator Whitaker asked whether we had sought tenders. We did not. The decision was to have the ship built at Verolme Cork Dockyard Ltd. I have no doubt that the B & I Company possibly could acquire a ferry cheaper from a foreign shipyard, but it should be understood that foreign shipyards are very often enabled to offer much cheaper prices only because they themselves are heavily subsidised. We concerned ourselves not only with the building of the ship but also with the fact that by placing this order with Verolme Cork Dockyard Ltd., we could ensure that there would be full employment in the yard over the next couple of years. Perhaps, therefore, the best way to describe the situation is to say the B & I Company have a strong commercial orientation coupled with a healthy attitude of social commitment. The Bill will provide the necessary underpinning for the continued development of the company and I am glad that I have had the opportunity of bringing it before the House. I thank the Senators for their contributions.

Mr. Markey

Has the Minister got the information about the increased employment figures of the B & I?

Mr. Faulkner

The employment figure in 1966 was 1,500. It is now 2,000, but actual passenger carryings have increased from 378,000 in 1966 to 760,000 last year, so the company's efficiency must have increased very considerably.

Question put and agreed to.

Agreed to take remaining Stages today.

Bill put through Committee, reported without recommendation, received for final consideration and ordered to be returned to the Dáil.

An Leas-Chathaoirleach

When is it proposed to sit again?

Mr. E. Ryan

Next Wednesday at 12 noon.

The Seanad adjourned at 5.15 p.m. until 12 o'clock noon on Wednesday, 25 July 1979.