I move: "That the Bill be now read a Second Time."
This Bill proposes a financial reconstruction of Nítrigin Éireann Teoranta but, before dealing with the provisions in it, I should like to say something about the company itself. The manufacture of nitrogenous fertilisers was a field into which private industry had not ventured, and after a great deal of study it was decided in 1961 to establish a State company to undertake this work. NET was incorporated under the Companies Act in October, 1961, with a share capital of £100, and under the Nítrigin Éireann Teoranta Act, 1963, it was given £6 million from the Exchequer by way of repayable advances with interest.
Right away, it can be said that the company have been a success. The factory, which is a complex of chemical plants, came into operation in 1965. There were difficulties, outside the company's control, in bringing some of the plant into operation as early as had been hoped, but by the end of the company's year to 30th June, 1966, the plants for making nitrogenous fertilisers were fully operating and the company made sales of more than £2¼ million in that year.
The utilisation of nitrogenous fertilisers in the cultivation of grassland was increasing substantially, and, in addition, there was a demand for complete concentrated fertilisers that include nitrogen as well as other nutrients. With the approval of the Government, NET installed a plant for the manufacture of concentrated fertilisers, and later the company extended their plant for the manufacture of calcium ammonium nitrate from an original capacity of 65,000 tons to a rated capacity of 140,000 tons. In the course of this operation the nitric acid capacity of the company was increased threefold. The company have also diversified into the manufacture of liquid carbon dioxide for the mineral water trade and solid carbon dioxide—dry ice—for refrigeration of fresh meat exports. They now supply the entire market for dry ice and a substantial portion of the carbon dioxide needs of the mineral water business.
These major additions were installed by 30th June, 1969, and it is worth looking at the company's balance sheet of that date. The fixed assets at 30th June, 1969, are shown at a cost of £9 million, and after depreciation of £1.9 million, they show a net value of £7.1 million. Current liabilities exceed current assets by £0.65 million, but trade investment, reserves and balances are in excess of that amount. The gross value of the company's sales in that year was £5.9 million and, after charging depreciation of £672,000, a net profit of £582,000 was earned, leaving out the question of State interest to which I will return in a moment.
The State finance given to provide the initial undertaking and the developments to the extent that I have outlined was £6 million issued on interest as repayable advances under the 1963 Act. Under that Act also, there was provision for the Minister, with the consent of the Minister for Finance, to guarantee sums that might be borrowed by the company to the extent of £1 million. That was availed of, and particulars of the amount so borrowed and guaranteed are laid annually before the House.
It has become clear that the method of financing the company provided for in the 1963 Act is not now an appropriate way of enabling the company to carry on this commercial undertaking. Possibly it should not have been done that way in the first instance. In the first place, there had necessarily to be a considerable gap in time between the initial acquisition and development of site, design and ordering of plant and so on, and the actual time when manufacture could start and sales commence. In that period money was being advanced from the Exchequer for that purpose, and interest was accumulating. It is estimated that the amount of interest that had accrued by the time operations and sales could commence was £850,000.
The nature of the fertiliser trade is also important when considering what the capital structure of this company should be. The application of fertilisers to the land is seasonal; and purchases of fertilisers from the producer, through the intermediaries, down to the user, largely follow that seasonal pattern. But the factory, for efficient production, must keep going. This in itself, apart from the question of extensions of plant, involves the company in matters of considerable financial credit. I think it will be sufficient to say that where credit has to be got for large amounts from overseas suppliers, in the normal way of trade, there can be difficulties for a company organised on a basis of £100 share capital.
For all these reasons, it is now proposed in the Bill before the House to change the capital structure of the company from one of loan capital entirely, to a combination of share and loan capital and to give the company a nominal share capital of £7½ million. Involved in this is a capitalisation of the interest which had accrued on the advances made by the State up to 30th June, 1967 and which amounted at that date to £1.212 million. It is appropriate that at this point I should say something about commitments and undertakings given in this House about this interest.
Both my predecessors and myself have given the House assurances that the Exchequer advances made to the company and the interest accruing on them were repayable by the company and that there would be no waiver of interest due. I made a statement to this effect on the Adjournment Debate on 9th March, 1967. At that time the question was raised that the financial accounts of the company did not make any provision for the charging of this interest in the year covered by the accounts, nor give the figure for the interest that had accrued from the time of the first advances. I made it clear at the time that a full and true picture of the company's financial position was given in the accounts submitted for the information of the Dáil. The balance sheet up to 30th June, 1966, showed the total advances that had been made and it carried a note that as the conditions of repayment of the advances had not yet been determined, interest had not been provided for in the accounts. In subsequent years, this note to the balance sheet included a figure for the interest accrued to the end of the year concerned, at the rates of interest on which the advances had been made, but again, no determination had been made as to how the moneys due should be repaid.
The reasons for not making a determination as to the manner of repaying the advances and interest I have given before. It would obviously have been pointless to have required repayments during the period in which the company was engaged in setting up the plant for manufacture; and immediately after, as I have said, the company was involved, and properly so, in an extension of its nitrogenous plant, the introduction of complete concentrated fertilisers and the exploitation of by-products. It would not have been in the national interest to require the company to make repayments out of its cash flow needed for the development of its business.
I now come to the provisions of the present Bill. In section 2, it is proposed that instead of being a £100 share company, the company will have a nominal share capital of £7½ million. Not all of this will be subscribed or issued at the present time, but it is there to take account of developments that may occur in the future.
Section 3 of the Bill deals with the repayable advances that have been made from the Exchequer, namely £6 million, and also with the interest that had accrued, at the interest rates on which the advances were made, up to 30th June, 1967. What is proposed is that, of the £6 million advanced, £3½ million should now be converted into share capital, leaving the remaining £2½ million as a repayable advance. In addition the interest that had accrued to 30th June, 1967, on the £6 million, namely, £1.212 million, will also be converted into share capital. Thus, on the enactment of this Bill, the company would issue to the Minister for Finance shares to the value of £4.712 million. The £2½ million advances which are not being converted into share capital would, with the interest accruing on them from 1st July, 1967, be repayable. The terms of repayment of this sum, with interest, will again be for the Minister for Finance to determine, but it may be taken that repayments will commence immediately.
I am putting it to the House that this is a reasonable way of restructuring the company's capital and of meeting the undertakings that have been given in respect of the original advances and the interest on them. The accrued interest to 30th June, 1967, and part of the advances will go to the Minister for Finance in the form of share capital that the company is confident it can remunerate by dividend. On the evidence of the company's achievements to date I share this confidence. In addition, the company will start to repay by annual instalments the remaining advances with the interest arising from 1st July, 1967. I would like to revert here to the position shown by the company's balance sheet at 30th June, 1969, which showed assets substantially in excess of the capital to be held by the Minister for Finance and the advances that will be due to be repaid to him. And on the company's capacity to service these, I refer again to the profit shown by the company for that year.
There were other undertakings given to the Dáil about this company when the 1963 Act was going through. These were that there would be no grant or subsidy assistance for the industry or tariff or quota protection. No grants have in fact been given to the industry, notwithstanding that grants have been given by An Foras Tionscal to firms in the private sector for the manufacture of concentrated fertilisers. Furthermore, there is no customs duty or quota on the importation of nitrogenous fertilisers. At one point, an anti-dumping duty had to be imposed against certain imports of calcium ammonium nitrate, but that was specifically to counter the importation of this fertiliser at prices proved to be dumping prices, and this duty was subsequently removed. In relation to complete concentrated fertilisers there was already on the tariff list, for the protection of manufacturers of compound fertilisers in the private sector, a customs duty applicable only to countries outside Britain and the preferential areas. This duty, imposed for the private sector, is the only element of protection from which the company might be said to get any benefit, and it is, as I have said, of limited application.
The company has shown itself capable of supplying its lines of fertilisers at or below genuine world prices. It has introduced manufacture of a high technology, and it gives employment to some 700 persons. It has not been subvented in any way, and I trust that the measures that this Bill proposes will be seen by the House, not as any waiver of obligations, but as a reasonable and necessary reconstruction of the company's finances.
There are some other amendments of the 1963 Act proposed in the Bill, but I think it is necessary to call attention to only two of them at this stage. Section 6 of the Bill proposes that the limit of £1 million to which the Minister, with the consent of the Minister for Finance, may guarantee loans obtained by the company, should be increased to £2 million. This takes account of the increased activities of the company beyond what was contemplated at the time of the 1963 Act. There will also have been an increase in the company's costs since that time. Some of this increased facility for guaranteed borrowing will be used for the purchase of plant for the treatment of pyrites from the Avoca mines. When NET was being planned originally, it was the intention to use pyrites as a basic ingredient in the production of nitrogenous fertilisers. On the closure of the mines, NET had to work on imported sulphur instead. The reopening of the mines has led to the happy position that NET can now revert to the original proposal, at a financial benefit to them and the elimination of that much sulphur from our import bill.
In section 4 there is provision that the Minister for Finance may dispose of his shares. This is in other legislation dealing with State companies, for example, the Industrial Credit Company Acts. There is also an amendment proposed in the Schedule to the Bill relating to section 9 of the 1963 Act. Under the 1963 provision, the Schedule to the 1963 Act, which in effect provides the machinery for the State's control of the company, operates as long as the Minister for Finance holds any shares in the company or any money is due to him by the company. The amendment requires that for this schedule to continue in operation the Minister for Finance must hold at least one half of the company's shares or that there be money due to him as repayable advances or that any loan guaranteed by the State be outstanding. In drawing attention to this particular amendment I am not in any way implying that there is any proposal in sight to change this company from being a State company. In fact, as the repayable advances will be repaid by annuity over a fair period of time, State control would automatically be retained by the amendment while that was the situation. It is simply that the amendment expresses the logic of relating control to a majority shareholding, and leaves all options open in the future.
I recommend the Bill for the approval of Dáil Éireann.