Dáil Éireann debate -
Tuesday, 1 Aug 1961

Vol. 191 No. 13

Committee on Finance. - Shannon Free Airport Development Company Limited (Amendment) Bill, 1961 — Money Resolution.

Minister for Transport and Power (Mr. Childers)

I move:

That for the purpose of any Act of the present session to amend and extend the Shannon Free Airport Development Company Limited Act, 1959, it is expedient to authorise:—

(1)the advance out of the Central Fund or the growing produce thereof of all moneys from time to time required by the Minister for Finance to meet payments required to be made by him to the Shannon Free Airport Development Company Limited in respect of any shares taken up by him under such Act;

(2)the making to the Shannon Free Airport Development Company Limited out of moneys provided by the Oireachtas of grants not exceeding in the aggregate one million and two hundred and fifty thousand pounds —

(a)to enable the Company to do such things as are calculated either directly or indirectly to encourage or facilitate the establishment and carrying on of commercial, industrial and trading enterprises at the airport, and

(b)to meet the running expenses of the Company;

(3)the making to the Shannon Free Airport Development Company Limited out of the Central Fund or the growing produce thereof of advances not exceeding in the aggregate four hundred thousand pounds to meet one-half of the expenditure by the Company on the provision of dwellings for workers employed on the industrial estate established at the airport and

(4)the charge on and payment out of the Central Fund or the growing produce thereof of the principal of and interest on any securities issued by the Minister for Finance for the purpose of borrowing under such Act and the expenses incurred in connection with the issue of such securities.

Mr. Sweetman

Could we have some clarification of the point with which we were dealing at the end of the Second Stage of the Bill? As I understand the position, the sole income the Shannon Free Airport will receive will be: (1) the rent it will receive for factory buildings, and (2) the rent it will receive for the dwellings it erects. I know of no other gross income it will receive. Perhaps I am wrong in that respect but I have no doubt the Minister will be very quick to contradict me if I am.

In respect of that gross income the company receives, the Minister told us the other day that the rent of the factory buildings would be sufficient to pay the economic interest that will be payable in respect of the capital cost of the buildings that were being erected. The Minister made it clear that the rent would not amortise in any way the capital cost of these factories, that it would purely be a refund, so to speak, of the interest due on such capital cost.

I do not know what is the position with regard to these various leases in relation to repairs. Is the Airport Company in any circumstances liable for repairs or is the factory lessee always liable for them? In relation to repairs may I know further what is the position in regard to reinstatement in case of wearing out? Is the factory lessee liable for insurance? In other words is the factory lessee liable for all outgoings of every nature in addition to his rent or is there any outgoing in respect of the building once it has been erected for which the Airport Company is liable? I would like the Minister to clarify also the position in regard to rates. Are the factory lessees liable for rates in the ordinary way as if it were a factory, say, in my unfortunate constituency of Kildare which always seems to be by-passed on these occasions?

So much for the economic rent question in relation to factory buildings. As regards dwellings, I understand that one half of the cost of the dwellings is a free grant that is not recoupable in any shape or form by the occupant or by any factory or by anyone other than the general taxpayer. In relation to the remaining moiety of the capital cost of the dwellings there is further a rent charged which the Minister said was uneconomic, but I am not clear on this—uneconomic as to what? Does the rent for the dwelling cover only interest in respect of that moiety of the cost of the dwelling? Does it provide to amortise the capital cost over any period of years and, if so, over what period of years?

Who is responsible for repairs in respect of these dwellings and where is the cost of these repairs provided for? Who is responsible for the other appropriate outgoings in respect of dwellings of that nature and who provides for them? When I say "who provides for them" I mean is the airport company responsible or is the tenant, and if it is the tenant is it the individual person who is living in the dwelling or does the company of which he may be an employee take the dwelling and re-let it to him? Who covers voids in the same case? There has been much too little explanation about the exact method of financing this and nobody can express any opinion as to whether it is good or bad until he knows the exact details.

Mr. Childers

It is not very easy to describe the basis of rent for the factory dwellings because we are in a period when the economic condition changes as time goes on. The company have calculated an economic rent on the basis of recovering the capital investment over 40 years with interest at 5 per cent. and, making provision for external repairs and maintenance, they have calculated a rent which would bring that situation about. However, some of the factories are being rented for initial periods up to five years at rents below the economic rent. It is hoped that in the case of these companies they will be able to pay full economic rents later. In the cases of other companies arrangements have been made that the rent rises over a specific period until it reaches the economic figure at which it would be able to do the things I have indicated.

It is impossible for me to say when that position will be reached because there are also clauses in the leases enabling the factories to purchase out their leases and there you have a fluctuating condition. All I can say is that receipts from factory lettings will increase each year and there should come a point where they will be providing economic interest and there should further come a point later on, if all goes well, when they will be remunerating capital as well. I should say that the final figure includes provision amounting to some 1 per cent. of the capital cost per annum for external repairs and maintenance.

Mr. Sweetman

What does the Minister mean by remunerating capital as well? I thought he said it was charged at 5½ per cent.

Mr. Childers

An economic rent which will both recover capital——

Mr. Sweetman

Amortise it?

Mr. Childers

——with interest.

Mr. Sweetman

Amortise it?

Mr. Childers

Yes. It involves rents which have been calculated by the company as the amounts they hope to be able to get either by way of a definite contract or further agreements in a period of years. That is the position so far as the factories are concerned. The factory is liable for repairs, insurance and for rates on the usual basis which, of course, involves the sliding scale of rates applicable to new buildings exactly as in any other area. The company is responsible for the maintenance of surroundings, roads and grounds. In regard to the housing——

Mr. Sweetman

Before the Minister leaves the question of the factory, when he talks of returning the capital, does he mean the capital employed in the erection of the building or does he mean all the capital that is employed not merely in the erection of the building but in the purchase of the land, the development of the services and so forth?

Mr. Childers

The whole of the charges.

Mr. Sweetman

Would the Minister say what is the longest period before that economic rent is reached?

Mr. Childers

It is hard to say — about five years at the moment. Some of them will have to be re-negotiated. There are other agreements which definitely go up to the economic figure in ten years.

Mr. Sweetman

We all know what re-negotiation means. It is a euphemistic way of describing——

Mr. Childers

Some of the companies have been willing to pay higher rents than others. The company was facing the difficulty of having to get started and to make progress. In regard to the housing, the Deputy already knows what happens. In the case of one-half of the cost of housing, the conditions are exactly the same as those in relation to the Local Loans Fund. In regard to the other half, the position is that the rentals charged to tenants contain provision for repair, maintenance, insurance, ground rent, administration and caretaking. There is a profit margin amounting to some ten per cent. of the total rental. After making allowance for what has to be provided, the effect of this profit margin is to provide a form of remuneration amounting to one and three-quarters per cent. of the share capital invested. That is in case of the half not subject to the Local Loans procedure.

If all the houses and flats were occupied all the time at the rents proposed by the company, all the capital would be recovered in 35 years' time, including the share capital and the repayable advances. The repayable advances, which amount to half the cost, would pay interest at the rate of five and a half per cent. per annum. The other half represented by share capital would pay at the rate of one and three-quarters per cent. That is the position.

Mr. Sweetman

The Minister has completely confused us by referring to the Local Loans Fund procedure. There are no free grants out of the Local Loans Fund.

Mr. Childers

No. The free grants are paid by the Local Government Department in the normal way and the sums are deducted before the calculation is made.

Mr. Sweetman

Exactly.

Mr. Childers

I tried to describe to the Deputy the position in regard to the half which is raised by direct capital from the company. There will be a deficiency on the present proposals in relation to the 250 houses to be completed by 31st March, 1964. There will be a deficiency at the rate of £6,000 per annum on the basis of all the dwellings being occupied, but if, as is intended, on the Company's capital a rate of interest at the rate of one and three-quarter per cent. is paid, eventually the capital will be recovered. There The principal will be recovered. There will be a deficiency of interest, because of the fact that the full treatment, as in the case of the half of the contribution from repayable advances, is not applied.

Mr. Sweetman

That is as clear as mud.

Mr. Dillon

May I put a specific question in order to try to clarify the thing without getting lost in general principles? If there is a factory costing £10,000, am I correct in believing that the economic rent of that factory is deemed to be £550, representing the interest, plus £100 representing the annual repayments in amortisation of capital, plus rates, plus internal repairs? Does that represent the economic rent, according to the Minister's calculation, of a £10,000 factory?

Mr. Childers

That is roughly the way the economic rent is being calculated. It works out on the basis of a given figure per square foot.

Mr. Sweetman

Where is the cost of exterior repairs in that?

Mr. Dillon

They are borne by the Shannon Development Company.

Mr. Childers

That is right.

Mr. Sweetman

If £650 per annum in that instance is the economic rent, it does not provide for exterior repairs.

Mr. Childers

The rentals of the factory buildings are being calculated to include a provision of one per cent. of the capital cost for external repairs and maintenance.

Mr. Sweetman

The one per cent. is for external repairs and maintenance? What amortisation percentages are provided?

Mr. Childers

Over 40 years.

Mr. Sweetman

Are there two figures of one per cent. — one per cent. for external repairs and one per cent. for amortisation?

Mr. Childers

The amortisation is over 40 years.

Mr. Sweetman

That would be two and a half per cent. on a flat basis. That is added to the five and a half per cent. interest as well and one per cent. Therefore, if we assume it is two and a half per cent., then the factory rental is eight per cent. of the capital cost.

Mr. Dillon

No, it is £250, two and a half per cent. amortisation, £550 interest and £100 for external repairs.

Mr. Sweetman

It is nine per cent. — my addition was wrong. It is five and a half per cent., two and a half per cent. and one per cent.

Mr. Childers

That would be correct. I have worked on the basis of so much per square foot covering all these charges.

Mr. Dillon

If you take a factory the square footage of which costs £10,000, then it appears that the economic rent is £900 a year, allowing for interest, amortisation and external repairs which are the liability of the Shannon Development Company.

Mr. Childers

Yes.

Mr. Dillon

Is there any corresponding calculation provided in respect of a flat or house?

Mr. Childers

I have not got the actual figures worked out.

Mr. Dillon

If a house costs £2,000 how does the Minister calculate the economic rent?

Mr. Childers

The best way I can do this is to read a lot of figures.

Mr. Sweetman

The Minister will agree that I am not taking him short in this matter today. I gave him full notice last week that I would raise it.

Mr. Childers

I do not think I can provide the figures in the way the Deputy requires them. I have done my best by saying that half of the cost goes in the way of repayable advances on the basis of the Local Loans Fund.

Mr. Dillon

That accounts for £1,000. What about the rest?

Mr. Childers

The rentals charged to the tenants make provision for repairs, maintenance, insurance, ground rent, administration and caretaking.

Mr. Dillon

Has the Minister any indication of what that is? Is that regarded as a percentage of the capital cost?

Mr. Childers

I am afraid I have not the exact figure. The main thing is that, on the half of the cost of housing which is raised directly from the company's share capital, a profit margin amounting to ten per cent. of the total rent has been taken into account. The effect of this profit margin is to provide a form of remuneration amounting to about one and three-quarter per cent. of the share capital invested. I think that clears up the matter.

Mr. Sweetman

It certainly does not. It makes confusion worse confounded. The Minister did not indicate whether these rents are being paid by the occupants or whether the factories——

Mr. Childers

In some cases the companies are taking the flat——

Mr. Sweetman

And having, so to speak, tied houses for their employees?

Mr. Childers

They are making arrangements to house them.

Mr. Sweetman

I thought a tied house of that sort had been abandoned a long time ago as belonging to an extremely old and decadent age.

Mr. Childers

And the workers are not compelled to go into those places, so far as I know, if that is what the Deputy means by tied houses.

Mr. Sweetman

We have been discussing tied houses in respect of the Labourers Acts and the Housing of the Working Classes Acts for a great number of years. I do not believe the Minister is quite as naïve about this costing system as he tries to make us believe. He understands what we are getting at very much more lucidly than he pretends. I believe he is not anxious to break it down into figures an ordinary person would understand.

Mr. Childers

I am not trying to do anything sinister.

Mr. Sweetman

We shall take the Minister at his face value. Has any block of dwellings yet been completed?

Mr. Childers

Ten houses have been completed and 137 flats are in course of completion.

Mr. Sweetman

Take the ten houses which have been completed. What did they cost? I shall not challenge the Minister. Roughly, what was the cost?

Mr. Childers

The construction cost, including fees, for the ten houses was £28,000.

Mr. Sweetman

On the Minister's calculations, what will he get for the total of those ten houses?

Mr. Dillon

£2,800 per house.

Mr. Sweetman

That includes services, I imagine. Does it?

Mr. Childers

It includes development services.

Mr. Sweetman

What does the Minister calculate the Shannon Free Airport Development Company will get by way of rent for these ten houses?

Mr. Childers

The rent for each house will be £260 per annum.

Mr. Sweetman

Does the tenant also pay rates and insurance and do internal repairs?

Mr. Childers

The rents charged to tenants contain provision for repairs, maintenance, insurance, ground rent, administration and caretaking.

Mr. Sweetman

In other words, the tenant pays only rates in addition to rent?

Mr. Childers

Yes.

Mr. Dillon

Does it include internal repairs as well as external repairs?

Mr. Childers

External repairs.

Mr. Sweetman

The tenant does internal repairs and pays rates?

Mr. Childers

Yes.

Mr. Sweetman

I do not see where the Minister's one and three-quarter per cent. will come out of that, from my experience of property development and property costs afterwards.

Mr. Dillon

Is it open to anybody in Ireland who wants to rent a factory in Shannon Airport to bespeak one of those factories, say, at £900 per annum, plus rates and internal repairs? Is there any restriction on the category of persons who can bespeak such a factory?

Mr. Childers

We try to encourage the factories to make use of air freight. This is a general direction. They should be factories engaged in the production of commodities where air freight is an essential factor.

Mr. Dillon

And are primarily engaged in export business?

Mr. Childers

Yes.

Mr. Sweetman

Supposing an Irish company set up at Shannon. Is there any restriction on its selling within the State, as apart from exporting?

Mr. Childers

The factories there are established for export purposes.

Mr. Sweetman

That is not the answer to the question I asked. Is there a restriction?

Mr. Childers

They could sell within the country if they wanted to, but if they used duty free materials they would be taxed on the material. It has not arisen yet.

Mr. Sweetman

They can put their factories there but they cannot get the duty-free privilege.

Mr. Childers

Yes, they are in a duty free area.

Question put and agreed to.

Resolution reported and agreed to.