Irish Steel Holdings Limited (Amendment) Bill, 1963: Second Stage.

Minister for Industry and Commerce (Mr. J. Lynch)

I move that the Bill be now read a Second Time.

The purpose of this Bill is to increase the limit imposed by the Irish Steel Holdings Limited Act, 1960 on the acquisition of shares in the company by the Minister for Finance from £4 million to £6 million, and on the guarantee by the Minister for Industry and Commerce of the repayment of moneys borrowed by the Company from £500,000 to £1 million.

The history and the development proposals of Irish Steel Holdings, Limited are, no doubt, known to the House, having been fully discussed during the debate leading to the enactment of the Irish Steel Holdings Limited Act, 1960. During that debate, I said it was expected that the total cost of the work necessary for the implementation of the company's development and expansion programme would be of the order of £3½ million. During the course of the work, however, unforeseen circumstances arose which vitiated the estimate on which that expectation was founded, and, while the development plans have not yet been completed, and are not scheduled for completion until towards the end of 1963, the final completion figure for the full programme, including a margin for contingencies, is now estimated by the Company at £5,020,000, of which they will provide £131,268 from their own resources.

The factors contributing to the increase can be broadly classified as follows:

(i) As the works progressed, it was discovered that the subterranean conditions were very bad and more and deeper excavation was found to be necessary, and the foundations had to be greater and more complex than originally foreseen;

(ii) wage increases granted to the building and allied trades since 1959 increased civil engineering costs;

(iii) certain additions and extensions were found necessary to provide for improved efficiency and economy of operation;

(iv) despite extensive advertisement, both in this country and in Great Britain, the company were unable to recruit the number of skilled Irish tradesmen required, and in consequence they were forced to utilise the services of a considerably greater number of foreign technicians at increased cost; and

(v) the revaluation of the Deut-schmark in March, 1961, further increased the cost of certain subcontracts.

In addition to this revised expenditure on the actual development project, it is necessary that a further £250,000 be provided for working capital in the exceptional period between the installation of the plant and its coming into full commercial operation. Certain parts of the new plant are undergoing protracted tests, and this will occur as each unit of the new mills is installed. In addition, certain teething troubles are to be envisaged. The cost of material and labour on this unproductive but necessary development work is accepted as a commissioning cost which should properly be provided out of capital.

The sum of £6 million includes provision of a reserve of £750,000. This provision is being made in case the advance of free trade should lead to proposals for adaptation of the works to fit into an economic framework wider than, and different from, that at present envisaged. This money is not committed to any purpose, and none of it can be used until a fully detailed plan involving its use has prior examination and approval by the Government.

It is also proposed that the limit of £500,000 imposed by the 1960 Act on guaranteed borrowings by the company should be increased to £1 million. When the figure of £500,000 was fixed in the earlier Act, it was in mind that this figure would be additional to the then existing limit of £300,000, guaranteed under the State Guarantees Act. The legal position is, however, that the total guaranteed borrowings under the 1960 Act are limited to £500,000, which is insufficient to provide working capital for the extended operations of the company. A margin is also required to cover, temporarily, further plant extensions, if such should prove necessary, in the event of free trade conditions arising, either by reason of our joining the European Coal and Steel Community or otherwise.

It is of course a matter of concern to me that the original Estimate should have been so far short of eventual requirements and I can assure the House that every possibility of confining expenditure to the original Estimate has been thoroughly explored. I have gone even to the extent of considering the possibility of curtailment of the development scheme. I was satisfied, however, that this course was not practicable. It is clear that Irish Steel Holdings Limited are in business in a highly competitive field and the viability of the company, and the security of the employment of their labour force of some 700 workers, can be assured only if their operations can be carried on at the highest level of efficiency. The development works now in progress are designed to bring about this position.

I have also satisfied myself that all reasonable steps were taken by the company throughout to obtain the best advice available and to endeavour to keep expenditure as close as possible to the estimate. It has proved that they were exceptionally, and unforeseeably, unlucky in regard to foundation conditions which could not be examined beforehand. This is a hazard of large-scale foundation work, particularly in conditions, as here, where the site concerned was occupied by existing heavy plant which had to be maintained in operation to the latest possible moment, in order to minimise interruption of output. The other factors of wage increases, labour shortage and currency revaluation were equally unforeseeable.

As regards the modifications of the original plans, these arose under various heads: it was hoped to use certain existing electrical equipment, but this proved to be impossible; the steel-making department buildings were strengthened to make them suitable for handling hot metal, as the future availability of this material has come to be considered possible; some additional electrical equipment was provided to cope with extra mechanisation which was considered desirable. The company's basic plans, as approved by the Government and described to the House, are unchanged.

While the House, like the Government, will be concerned at the large increases in the cost of these works, I am sure it will be agreed that there is no practical alternative to providing the money to complete the developments as planned.

I recommend the Bill to the approval of the House.

Mr. Cosgrave

While we approve generally of the proposal involved in the legislation before the House, I think the House would be interested in the reasons for the increased costs. It is somewhat less than three years since the proposal was last before the House and the question of increased financial provision was under consideration. As I understand from the chairman's report which was considered in January of this year, the increase in costs was attributable to the increased cost of civil engineering, chiefly site preparation, foundations, structures, cellar and culverts. In view of the comparatively short time since the estimate was originally prepared, the House should be told why it was necessary to increase substantially the cost of the proposed re-development work there.

The other matter which should be of interest to the House is what has happened to our application to join the European Coal and Steel Community. Is the application being pursued or is it dependent on our application to join the EEC? As I understand it, our original application was dependent on our application to join the European Coal and Steel Community. In view of the fact we have decided not to proceed with our application to join the EEC, perhaps the Minister would say what has happened to the application to join the European Coal and Steel Community? Subject to these two queries—why it was necessary to revise upwards the estimate of the work at Haulbowline and, secondly, what has happened to our application to join the European Coal and Steel Community—we generally approve of the proposal. We believe that Irish Steel Holdings Ltd. have done a very good job, faced with keen competition in a sphere in which they have to meet unusual difficulties. Allowing for these factors, therefore, I should be interested to hear what decision has been reached in respect of the Coal and Steel Community application and also the factors which, within a relatively short time, contributed to the substantial increase in the original estimate in respect of the development work at Haulbowline.

Mr. Norton

The Minister might usefully have given us a little more information than is contained in the four-page statement he has circulated. For example, he says on page 1 that the factor contributing to the necessity for the additional moneys was the fact that as the works progressed, it was discovered that the subterranean conditions were very bad and more and deeper excavation was found to be necessary, and the foundations had to be greater and more complex than originally foreseen. The Minister might have told us how much of this new money we are to spend on repairing the deficiency in the subterranean foundations. I would regard that kind of work as not very remunerative and as almost dead timber in an enterprise of this kind. It has no market value, no fixed assets value. It is the kind of thing you have to do in order to prop an enterprise on top of it. But its contribution to the welfare of the enterprise is that it merely makes it possible for the enterprise to carry on. The enterprise itself can make a profit or a loss, but the foundation, beyond making the enterprise viable, can do nothing to influence its prosperity. How much will we have to spend in repairing the defective foundations and putting the subterranean foundations on a basis that will enable them to carry the superstructure? Perhaps the Minister will give us some idea how much will be spent on these subterranean activities?

I should like to know from the Minister what classes of products are now being made at Haulbowline? I know for a fact they did make flats and rounds. They were also making angle iron and galvanised sheeting. It was contemplated they would go into the rolling mill stage and make some black sheet. Have they started to make the black sheet yet? If so, is it intended to go further than that?

I should also like to know to what extent the existing tariff is being indented upon by Haulbowline to compete in the home market on favourable terms with the imported article. It is well known that, were it not for the tariff, it would have been possible to import British and Belgian steel at prices for this range of commodities less than those at which they were being produced here. Is that still the position? To what extent is the tariff being used by Haulbowline as a protection against the cheaper imported product? There were times when the British and Belgian steel prices were higher than those of the Irish product. In order to ascertain what way the market is moving as far as Irish Steel is concerned, I should like to know whether at present Irish Steel could compete with British and Belgain steel if there were no tariffs, or how much of the tariff they find necessary to use in order to be able to compete with Belgian and British steel exports to this country.

The Minister might have told us, too, what his view is of the future of Haulbowline. I hope it will be a bright one; I hope it will continue to give expanding employment. Although everybody will accept it is very awkwardly placed—in fact, uneconomically placed—nevertheless, it has in very difficult times been able to do what on the whole has been a very good job, particularly when you recollect it has no natural sources of supply and has to rely in the main on scrap metal gathered in all parts of the country. Occasionally it may be able to use some small ingots which are imported, but by and large, it has operated on scrap metal gathered in all places throughout the country.

What does the Minister think of the prospects of this enterprise in Common Market conditions? What does he think of its prospects of survival if there are no tariffs to protect it on the home market? I do not think it has ever been able to get any market in Europe for any of its products. It has been able to get some markets in faraway places such as Asia and Africa for a limited number of its products, but I suspect even there the prices quoted were extremely keen and the sales were probably made on the basis: "We have got the stuff and it is better to sell it at almost no profit, and really no profit, in order to dispose of it and get the money."

Would the Minister like to say now what he thinks of its prospects in Common Market conditions? Everybody knows that the steel market is not only extremely competitive but viciously competitive. If anybody doubts that, all he has to do is to look at the stock exchange news in the morning or evening paper where he will find the shares of steel firms in England which are capitalised to the extent of £70 million and £100 million have fallen catastrophically in the past two or three years. There is one wellknown firm with a capital of over £100 million, the shares of which three years ago were worth 50/- each and are worth about 11/- to-day. The firm have stopped paying any dividend whatever and are no longer under British law regarded as a trustee security.

Take, for example, huge firms such as Colvilles, Dormans, South Durham. When one finds their shares rolling down with such catastrophic effect from the point of view of the unfortunates who hold them, one may well get a shock and ask can we, with the relatively limited resources at Haulbowline, compete in European and world markets with firms having the enormous financial and technical resources of these British firms.

I hope we can keep Haulbowline going. It may very well be that a smaller unit of this kind can be more viable than the larger units to which I have referred but it will be hard going and those who can make Haulbowline a viable enterprise in the circumstances of to-day and the anticipated circumstances of to-morrow will deserve some form of decoration in due course from the Irish people.

However, I should like the Minister to say what his assessment of the outlook is because undoubtedly one must consider what the future will be before deciding to put in another £2 million of additional capital and take power to guarantee another £500,000 to the banks on behalf of the enterprise.

I hope, therefore, that when he is concluding the debate, the Minister will give us some picture as to what he anticipates the future of Haulbowline is. I hope, as I have said, that it is a bright one but the going will be very tough and if we can make a success of it in the new conditions with which we are likely to be confronted in Europe and with which to some extent we are being confronted to-day, it will be a great tribute to all those associated with the company.

Sir Anthony Esmonde

I remember when the Minister brought in a Bill to extend the capital of Irish Steel Holdings less than three years ago, I queried as to whether it might not be possible to procure the money by a public flotation. The Minister replied that this firm had at one time been a private company and had not been able to manage its affairs economically and successfully as a viable unit and the State had intervened and had built it up to a successful industrial enterprise.

While I accept that there are a considerable number of men employed in this factory, I do not think the Minister has given us sufficient information to enable us to make up our minds as to whether this Bill is necessary or not. He mentioned a fact, which was referred to by Deputy Cosgrave and Deputy Norton, that the money was required for some reconstruction, due to subterranean trouble that had been discovered. He did not tell us the precise amount of money that is being used for that purpose, although the increased capital is £2 million and borrowing is extended by another £500,000. It would be no harm if the Minister were to clarify that point for us.

I should be glad also if he would clarify another point. If on the last occasion I queried the Minister about this firm in the House the firm was then a solvent concern and the Minister felt that it was only fair, equitable and just to extend the capital as the State infusion of capital had been responsible for building it up as a viable unit, is that still the state of affairs? Is this firm a paying concern? In other words, are we selling the steel which is manufactured there and which, I take it, is largely used as raw material to service Irish industries? Perhaps we export some of it. Is it an economic proposition? Is it able to show a dividend profit? Can the Minister say that in the foreseeable future, with the infusion of this capital, this firm will be a viable and strong unit or are we simply infusing capital into the firm to keep it alive? Structural alterations were found to be necessary and are we infusing the capital for that purpose, or is that capital being injected into the firm because we will have to face considerable economic difficulties in the future as a result of the liberalisation of trade which obviously will come about and it is considered necessary to expand this firm so as to make it a stronger or more viable unit?

I pose these questions to the Minister only because I think that when a Department comes to this House seeking further public money, the purpose for which that money is being used in its entirety and the prospects for the future ought to be made absolutely clear to Dáil Eireann and to the country.

I should also like the Minister to tell the House of the sales of steel that are taking place from this factory; where they are selling the steel. Are they selling it entirely within the domestic market or are they exporting it on an open market in competition with other stell holdings in various parts of the world? That is a reasonable question to ask and the Minister will agree that it is an important question because, come what may, while negotiations for entry to the European Economic Community have not been immediately successful for us, it is obvious that there will be further liberalisation of trade and that we will have to face competitive conditions. If we are to do so, the House is entitled to know if this money will give the infusion and injection of life into this firm that will make it a profitable unit.

That brings me back to the point I made earlier and which I have made repeatedly on occasions when Ministers came into this House seeking public funds. If this is a solvent concern, if the future of this company can be regarded as satisfactory in every way, is it not possible to have a public flotation on the open stock exchange and to get the necessary funds from the general public? There are very few opportunities for real industrial investment by the public in Ireland to-day. A parallel quasi-State organisation, the ESB, went on the market the other day and the loan was oversubscribed in a very short period of time. The public, the Dáil and everyone concerned are satisfied that the ESB is a strong economic unit. Facing the conditions that will obtain in the future, taking into consideration, as Deputy Cosgrave has said, our application to join the European Coal and Steel Community, it does seem to me that if we are able to face up to all those circumstances, it is reasonable to ask why should not a public flotation be made in order to get the money necessary for Irish Steel Holdings Limited. If the money could be raised by public subscription, and if it were not necessary for the Minister for Finance, as I assume he must do in this case, to underwrite the money, it would be to the advantage of the company, and public funds which are available to the State, and which are considerably limited, could be invested elsewhere, and perhaps in some other firm or organisation that might require an infusion.

These remarks are made entirely subject to the fact that this is a completely viable firm. I hope the Minister when he comes to reply will give the House—I must say he generally does —the full information on the questions I have raised. I appreciate the fact that this firm is situated in a centre where the employment it gives is very necessary and where it is desirable to maintain that employment. Indeed I have no doubt the employment given is very dear to the Minister's heart, as it probably is also to the heart of Deputy A. Barry sitting behind me. At the same time, it is our duty here to survey and examine the expenditure of public funds and to ensure, so far as we can, that they are utilised to the best advantage. It is for that reason, and that reason alone, I have intervened in this debate.

Mr. J. Lynch

I can assure Deputy Esmonde that neither Deputy A. Barry nor I would lose a great many votes, if the Government's decision were to abandon Irish Steel. Nevertheless, there may be some political "lolly", as I have heard the term, in it for both of us, but that is not enough to ensure that it will be kept going, and it is not so significant as to colour my judgment as to the desirability of ensuring that the development works now in progress should be completed.

A number of questions were asked by the three Deputies who have spoken. Deputy Norton's I anticipated to some extent and I hope I shall be able to give reasonably satisfactory answers to the questions raised. The first question was that raised by Deputy Cosgrave as to what the position is with regard to our application for membership of the European Coal and Steel Community. While the application for membership of that body was made technically independently of our application for membership of the Common Market, it is obvious that the outcome of our application for membership of the Common Market will determine whether or not we will proceed with our application for membership of the European Coal and Steel Community. In so far, therefore, as our application for membership of the Common Market is now in suspense, it may be taken that our application for membership of ECSC is also in suspense.

That brings me then to the question raised by Deputy Norton, Deputy Cosgrave and, I think, Deputy Esmonde, as to what the prospects are of the survival of this industry in free trade conditions, whether within or outside the Common Market. First, I want to comment on Deputy Esmonde's statement, and its implication, that this company would not attract public support if it put its stock on the public market. I can assure Deputy Esmonde, though I was rather immature at the time, that if the ESB had put its stock on the market 30 years ago, it would not have attracted the same type of support as it did in recent weeks. Because nobody else was prepared to generate electricity at that time to the point at which it would be required for national use, the then Government decided to set up a generating system of its own. Similarly, it is because private enterprise failed in the carrying on of this steel producing operation in Haulbowline, and because the Government were able to get control of the plant at a reasonable price, that it was decided to produce steel in certain forms in Haulbowline through a State-sponsored company.

It is true the company has been in existence for some years, but its scope of activity has been limited by very many factors. Because that limitation was seen to prejudice its continued existence, it was decided that this new development was necessary, not only to ensure and maintain the employment of the existing 500 men employed there but possibly to expand it, and it is confidently hoped that this new development, when completed, will expand permanent employment in Haulbowline to 700 men. I believe that when this expansion will have been completed gradually, when the teething troubles are over, and when it will have established better markets, it will be a reasonably viable undertaking.

In this connection, the company were asked to examine their possibilities in free trade conditions. The company pointed out that there were, in the first place, certain uncertainties as to the terms on which entry to the European Coal and Steel Community might be effected. It appeared to the company that it was essential to press on with their plan to expand but that, in Common Market or free trade conditions, it might be necessary to rationalise or specialise to a greater extent than is now envisaged.

As I mentioned in my opening statement, there is in the financial capital structure a provision of £750,000 which the company may call on if they require it to proceed with such rational or specialised programme. As far as they possibly can provide, the company have foreseen possible free trade effects on their operation and will be able, subject to their satisfying the Government on the point, to provide finance for whatever adaptations are necessary. It is true that the company are protected at the moment as to the bulk of their output by a tariff. If the question is how does the selling price of steel in bars and angles produced at the moment compare with imported prices, the best assessment I can get from the company is that the prices at which Irish Steel now sell are higher than the lowest Common Market home prices and lower than the highest prices; they are, therefore, somewhere in between in an ever-fluctuating price structure. In addition, and I think Deputy Norton anticipated what I am going to say here, they have markets as far away as New Zealand, not for a very significant proportion of their output but certainly of such significance as to engender a degree of confidence in the future of this industry.

A question was raised about the continued existence of the sheet mill. There was, when the State took over this enterprise, a sheet mill which was not fully completed and was, in fact, never completed until this present development programme was envisaged. It is now in course of completion. I think I said when speaking on the original Bill that the sheet mill is not the most modern in the world. Nevertheless, we have the basis of a structure there and it is considered economic to go ahead with the completion of it and produce sheet for home consumption.

It is hardly likely that sheet can be produced economically to sell at competitive world market prices, but if the sheet mill were not completed, there would be an obligation on the company to find markets abroad for roughly 10,000 tons of steel produced in the mill that would otherwise be absorbed in the manufacture of black sheet. That sheet in turn would go to the galvanising process which employs roughly 60 men at present, so that not only would the company be faced with the obligation of finding an outlet for 10,000 tons, if they did not proceed with the sheet mill, but it could be likely that the continued employment of the 60 men engaged in the galvanising process would be in jeopardy.

As regards the most important question raised, the reasons for the increase in capital from £3.5 million to something over £5 million—I think the net increase is roughly £1.3 million—I think it is only fair that I should try to break it down as clearly as I can and give the reasons for the increase. First, the subterranean conditions to which I referred emerged, or rather knowledge of them emerged, only as the foundations were being built. Trial borings were carried out and, as many of us know as a result of discussing mining legislation here over a number of years, borings of themselves do not reveal the true picture in any underground operation. It is only when the full mining process is undertaken that the underground conditions are fully disclosed. This was the case in the laying of foundations for Irish Steel. The company found that not only were the subterranean conditions worse than anticipated, and certainly completely at variance with what was disclosed in the trial borings, but that the deeper the excavations went—they had to go deep because of the very heavy machinery which was to be built and already in position over it—the more complex the problem became.

It involved seepage or infiltration of the sea that could not possibly be foreseen but between the erection of extra coffer dams, the increase in wages, the extra work involved and the increase in time that the extra work caused, the increase in the cost of the civil engineering works amounted to something like £600,000. The actual cost of the extra structural work out of that sum, was about £300,000. There were additions or extensions to items as the work developed and as appeared to be prudent to the company, amounting to some £78,000. Then there were increased erection costs amounting to some £200,000 but one of the major factors in that was the failure to recruit sufficient Irish technicians. As I said in the opening statement, the company advertised extensively for Irish technicians with the required knowledge but, unfortunately, by reason of local competition to some extent—the existence of the oil refinery and the Verolme Dockyard was one cause—they were unable to recruit sufficient technicians and the contractors had to bring with them—it was a German firm, incidentally—technicians from Germany. In that way, a skilled erector would cost the company about £10 a day as against £2 or £3 originally estimated.

Escalator clauses in equipment contracts as quoted originally account for some £160,000. Then there was a question of the devaluation of the deutschmark so that with other minor additions one can readily see how the increase of £1.3 million in extra costs occurred. I was perturbed that such extra costs would have to be incurred and I made a close examination to see if they could be avoided, even at the expense of reducing the scope of the development programme. But on careful examination, I found that it was better to permit the programme to develop as originally envisaged by the company.

These remarks cover most of the points raised by Deputies but if there are any other questions they would like me to answer or any I have overlooked, I shall do my best to answer them.

Sir Anthony Esmonde

Could the Minister give any idea as to the percentage of exports compared with sales on the domestic market?

Mr. J. Lynch

I should not like to suggest that they are very significant —perhaps three or four or five per cent.

Mr. Norton

When does the Minister hope this reorganisation will be completed so that the firm will be equipped with all resources to go ahead? Are any negotiations proceeding for a liaison arrangement or joint working arrangement between Haulbowline and any other non-Irish company?

Mr. J. Lynch

The answer to the first question is that the development programme is expected to be completed by the end of this year. In reply to the second question, there was a suggestion at one stage that an outside company would have, as the Deputy mentioned, a liaison arrangement with Irish Steel for the production of their products but that was not pursued and, so far as I know, the proposals have not been revived.

Mr. Cosgrave

Was there any specific reason for the increased costs of the work? What were the reasons for it and why was it not envisaged that these increased costs would arise when the Estimate was originally prepared?

Mr. J. Lynch

I hoped I had covered these points in my reply but the main cause was the extra cost occasioned by the subterranean conditions that were discovered in the course of operations and that were incapable of being discovered by drill borings; the escalator clauses in the contracts for the supply of equipment; the increase in the rates of wages that occurred in 1960-61 and the necessity to bring in German technicians in place of Irish technicians who were not available, even though it was anticipated initially they would be available; and the devaluation of the deutschmark—these are the main factors.

Dáil Éireann debate -
Wednesday, 27 Mar 1963