Irish Steel Holdings Limited (Amendment) Bill, 1979: Second Stage.

Minister for Industry, Commerce and Energy (Mr. O'Malley)

I move: "That the Bill be now read a Second Time."

The main objects of the Bill are to increase the authorised share capital of Irish Steel Holdings Ltd. from £6 million to £25 million, and to raise the ceiling of borrowings which may be guaranteed by the Minister with the consent of the Minister for Finance from £3 million to £60 million.

The Dáil is aware that Irish Steel Holdings Ltd. is a wholly State-owned company with share capital of £6 million held by the Minister for Finance. The amount of borrowings covered by ministerial guarantee at present is £765,800. The principal activity of the company is the manufacture of steel from ferrous scrap. Its principal products are reinforcing bars and sections in a limited range of sizes mainly for the construction industry.

Following advice from external consultants who made a thorough study of the company's operations and potential, the company has embarked on a major development and restructuring of the industry which it is anticipated will give more efficient and more flexible production. A new 90 tonne electric arc furnace will be installed to replace the existing 30 tonne electric arc furnace and a continuous casting facility and a new universal bar and section rolling mill will replace part of older outdated plant. The programme envisages the commissioning of the new plant by mid-1980 and the expansion of crude steel output and finished product output over the succeeding five-year period to the projected annual output level of 282,000 tonnes of saleable products. This will be more than double present output.

While this restructuring of the steel mill will give greatly increased production capacity the workforce will not be increased. The position is, however, that the company's operations are no longer viable and without this modernisation programme the industry would have to shut down with the loss of the jobs of over 700 workers. The industry will now be given up-to-date means of steel production which will put the company's unit costs of production on a competitive level in the European Community.

The cost of the programme will be in the region of £45 million, including £10 million working capital and pre-production expenses. Of this £10.5 million will be provided by the Exchequer as share capital, £4 million by an IDA grant, £17.5 million by a loan from the funds of the European Coal and Steel Community, £8 million by the leasing of equipment through United Kingdom banks and the balance from other commercial sources.

The crisis in the steel industry which has been with us since 1974 together with the outdated methods in use have created difficulties for the company and consequently it has had to borrow heavily to keep in business. The company's projections, however, show that even allowing for the servicing of these loans there will be profits in the third and subsequent years of operation.

As Deputies are probably aware, the European Commission did not immediately approve the Irish Steel Holdings proposals. This was because of its requirement that investment proposals should not be in conflict with the restructuring requirements of the Community steel industry made necessary by the world steel crisis. The Commission initiated discussions between the company and a French steel company—Societé Metallurgique et Navale Dunkerque, Normandie (SMNDN)— which led to the conclusion in December last or reciprocal marketing arrangements. The two companies have agreed to market a proportion of each other's production in their respective areas of market influence—up to 30,000 tonnes per annum in each case when the Irish Steel Holdings plant becomes operational. During the period prior to the commissioning of the new plant Irish Steel Holdings and SMNDN will maintain contacts with a view to fostering relationships not only between the two companies but also with their respective customers.

I might at this stage advert to the fact that the company's policy will, of course, be in the first place to satisfy the home market demand, the balance of production being for export. The agreement with SMNDN will give the Irish company a foothold in the wider Community market as well as providing economies in production costs. However, apart from the anticipated benefits from the agreement, the company is building up its own sales management team to deal with the increase in products for export expected to come on stream late in 1980. The consultants who examined the projects are satisfied that the export targets can be met.

The European Commission are satisfied that together with the modernisation of the Irish Steel Holdings plant the agreement with the French company is in accordance with the general objectives for the Community steel industry. Irish Steel Holdings thus qualifies for a loan at a favourable rate from the funds of the European Coal and Steel Community.

There are also minor amendments to the Principal Act proposed in the Bill:

—section 2 provides for the change of name asked for by the company from Irish Steel Holdings Ltd. to Irish Steel Ltd.

—section 5, besides providing for the raising of the ceiling for Ministerial guarantee of loans includes some changes in the relevant section of the Principal Act so that the guarantee may cover payment in respect of contracts entered into for leasing of plant and equipment as well as commissions and incidental expenses arising in connection with a loan or leasing contract.

—section 6 provides for the approval of the Minister and the Minister for the Public Service to the remuneration of the chief officer of the company, and

—section 7 provides for similar approval of any alteration or arrangement in the superannuation of the staff of the company.

The two last amendments are being included in the legislation for all State-owned companies as the occasion arises.

I am confident that the Bill will commend itself to the Dáil and I recommend the Bill for its approval.

Mr. Kelly

We are not opposed to the measure this Bill contains and we will support the Minister's action. At the same time there are a few items to which attention needs to be drawn. One is the apparent disappearance of all limits from the amount of money which the State is willing to put into the project purely for the purpose of preserving a relatively small amount of employment. I realise that the Minister's party, and my own party, are subject to pressures in this regard and that makes it unthinkable that there would be anything but a bipartisan or tripartisan approach to this in this House. Even if we were not subject to political pressures nobody wants an industry to disappear.

On the other hand, here is an industry which is embarking on an expansion programme that will not be reflected in any extra jobs and may end up supporting fewer jobs than are now there. That is a programme for survival because, unless it embarks on such a programme, it will go to the wall and these jobs will be gone. We are going to spend £45 million on an industry, which admittedly is unique of its kind in this country and to that extent has some claim on our sentiment, in rescuing employment which is threatened.

I contrast that with the ineffective measures which the State has taken in other respects where employment has fallen from the country like snow off a ditch because of failure to guard adequately against competition from outside, against low cost imports, against the British temporary employment subsidy and so on. The Confederation of Irish Industry estimate that many thousands of jobs have been lost not because we have failed to spend enormous amounts of money—I admit that to have matched the British temporary employment subsidy earlier would have cost money—but because of an insufficiently aggressive stance on behalf of the Government in combating measures of this kind which were taken abroad and had a disastrous effect on vulnerable sectors of Irish industry. It is due partly also to the Government taking an inadequately aggressive approach towards controlling dumped imports from other countries which had, and are still having, the effect of closing down traditional Irish industries and ones which derive their raw material from natural resources. Perhaps they are not very glamorous natural resources, timber, leather and so on, but they are natural resources and they will be there when the world has tired of other ones or the resources of others are exhausted.

We have failed to protect employment in the dull, boring old sectors such as textiles, clothing, footwear, leather production and the timber industry when it could have been done without any excessive investment of money. We are pouring £45 million into keeping a project going, the continuing existence of which, apart from a sentimental attachment, is hard to justify. The difficulty in justifying it was reflected in the long delay after which the European Commission finally expressed itself as happy with this redevelopment project.

The steel industry has been and is having, a very difficult time in the European Economic Community generally, largely because of cheap imports from countries which are only now getting into the steel business and are able to do it for half nothing. In this favoured north-western corner of Europe, there is heavy unemployment in the steel industry even in countries which have a long steel tradition and do not have problems of supply such as Irish Steel Holdings and Haulbowline might have and which have a long tradition of expertise in this matter. There are parts of Germany, in the Saar, in the Ruhr and other regions, where unemployment is twice the national average because of slackness in the steel industry. There are parts of France, which are not a stone's throw from the Societé Metallurgique et Navale Dunkerque. It must be aware that on its own doorstep there is widespread unemployment which has led to serious political disorders, to riots in the street and to the employment of the mobile guards or whatever the French call their riot squads. This has been purely as a consequence of the distress caused by uncompetitiveness of European steel. This is the very sector in which we propose, purely for the sake of maintaining a number of jobs, which is tiny towards what we have thrown away in neglect in the last few years, to spend a lot of money.

I support the Minister's Bill because there was unanimity in the party that we should support it and be behind the maintenance of this employment. I have misgivings as to whether nationally, or in the long term, locally, it is a sensible way of proceeding.

The Minister has given a breakdown of the £45 million pounds which shows that £10½ million pounds will be provided by the Exchequer as share capital, £4 million by an IDA grant, £17.5 million by way of a loan from the funds of the European Coal and Steel Community, £8 million by the leasing of equipment through United Kingdom banks and the balance from other commercial sources. That does not conceal the fact that every penny of the £45 million will be provided from the resources of the national Exchequer in the short or long term, unless I have misunderstood the Minister's explanations. I hope that the long-term outlook for steel production in the EEC will improve. If it does not, I can see either this or some other Minister back here in a few years with some kind of a tale and another application to bale something out, which perhaps it is unduly sentimental of us to be doing now.

I am very much out of my depth in anything technical but I see that the agreement between Irish Steel and the company in Normandy envisage a reciprocal marketing arrangement whereby each would co-operate in shifting 30,000 tonnes of the other's product a year. On the figures which the Minister has given that is a very small proportion of the production which he envisages for the Haulbowline plant. It is not much more than 10 per cent of it. While naturally a reciprocal marketing arrangement must be beneficial—it is the kind of thing the Common Market exists to promote—unless there is something behind the figures which I have misunderstood, that arrangement does not seem to me to guarantee anything very much for this company in the long term.

I am sorry if I have been somewhat on the pessimistic side but this party are unanimous in their anxiety to support this company and to have employment there protected. However, in the long term we may be talking in terms of several hundred millions of pounds more in this respect and asking ourselves whether it has been sensible at a time like this to keep our industrial lines so over-extended having failed so lamentably to protect other industrial outputs in the last couple of years.

Mr. Quinn

I am speaking for this party in the absence of Deputy Barry Desmond who, unfortunately, is unable to be present this morning. We welcome this legislation in so far as it strengthens basically a critical part of our economy and in a way that enables the Irish people, through their Government, to retain control of the production and manufacture of steel which predominantly is for the construction industry. If Deputy Kelly wishes to look to that industry in terms of a source of employment he will realise that it is perhaps the largest single employer of labour apart from agriculture proper.

Mr. Kelly

Unfortunately, though, it is not very gainful employment.

Mr. Quinn

We might talk about that at a later stage but much of the enormous building programme that is planned for the future is of a directly gainful return nature and much of it also is in the nature of indirectly gainful return. I do not think that building at any stage is non-gainful but perhaps my prejudice as a working architect is coming to the fore.

Mr. Kelly

I thought the Deputy was referring to the State as an employer.

Mr. Quinn

I was referring to the construction industry. The Government were right to press ahead with this measure. I am aware of the kind of difficulties they had in convincing the European Communities of the absolute necessity to develop Irish Steel and to persuade them that it is necessary to modernise in order to remain static, not to talk about developing. We in the Labour Party had the same difficulties politically in the European Parliament when members of the Socialist group, particularly the Luxembourg members, one of whom had worked as a union official for the steel industry in Luxembourg prior to his election to the parliament, raised the question of how the spending of EEC money on a small steel plant in Cork where there is no steel tradition could be justified when many people are unemployed and when there are mills in a situation of under-capacity to an extent that has not been experienced for many years. The argument we made within the context of the Socialist group, an argument that was made forcibly by Deputy Kavanagh, was that each country required a basic steel industry for the purpose of providing essential supplies in this conown local economy and that in this context Irish Steel, which is a State company, should be protected and extended. By protection we meant it had to be modernised so as to produce steel at an efficient level relative to the ever-improving technology of steel production.

The reason for the crisis in the steel industry is that the labour cost of this activity in places like Spain and south-east Asia are much lower than is the case in the EEC and also that some of the older steel companies, particularly the French ones, have become, under private enterprise, very inefficient, under-invested and under-capitalised. The sense of what Deputy Kelly was suggesting was that those parts of the Community that have a tradition in certain areas of production such as steel should be encouraged to produce for all of us and that in return other parts of the Community that have traditions in certain areas of production, such as food, should reciprocate so that there might be a balance relative to the national capacity and resources of the various regions.

But in the absence of a common industrial policy—and this is presupposed by Deputy Kelly in his remarks—we could not but press for the consolidation, modernisation and development of Irish Steel. If the French and the Germans who hold the whiphand in so many aspects in the EEC are concerned in real terms about the plight of the steel industry and about the plight generally of old traditional industrial sectors from which they have wined and dined for many years, it is with them that responsibility lies primarily in promoting and developing a common industrial policy into which would fit neatly the kind of logical argument that Deputy Kelly was making. Then we could relate the role of that policy in relation to Irish Steel. However, we do not have that kind of policy and I think that the Minister as well as Deputies on both sides will agree that we are a long way from it.

What are we to do in the interim? The consolidation of a State holding company which is producing raw material that is critical and essential in terms of the construction industry and the retaining of control of that company by the State is the right approach and the Minister had no choice but to adopt this approach irrespective of whatever local pressures may have been brought to bear. I am sure that if this plant had been located in any other part of the country there would still have been local pressures.

The House should be clear, having heard Deputy Kelly's remarks, that all we are being asked to do in this instance is to agree to an increase of £10.5 million in share capital for this company. The IDA, through their budget on which we shall be voting separately, are making available £4 million of that amount and the rest is being made up by way of loan from British and European banks. One must presume that since this action is being taken the operation will be on a commercial basis and that the return on the capital borrowed will be serviced by way of increased sales and, consequently, increased profits. Perhaps the Minister would clarify the position in his reply but I am presuming that all we are being asked to do is directly to agree to the making available of £10.5 million by way of extra share capital. The essence of this legislation is that the Minister is seeking our approval to raise our capital investment in this company so that it may be modernised in the way that is necessary and in accordance with the approval of the European Steel and Coal Communities.

There is no need to continue at length on this subject. So far as the Labour Party are concerned this move to consolidate the steel industry is essential in terms of the public control of the primary material involved especially in the context of its importance to the construction industry. I am glad that the Government are taking this action having regard to the importance of a nationalised steel industry in terms of our economic and industrial development and having regard to possible future problems in relation to steel on the world market.

Mr. O'Malley

I am glad that the Bill is being accepted fairly readily, though we have had two diametrically opposed sets of reasons for, in one case, not opposing the Bill and in the other case for supporting it. It is interesting to note the fundamental cleavages in approach. Without offending anybody, I might say that Deputy Quinn's grasp of what is at stake is the more clear grasp of the situation. This is not simply a rescue operation for the purpose of preserving the 700 jobs which are there. If that was all it was I would not promote this Bill in the House, because at a total cost of £45 million it would be ludicrous. One could create ten times more jobs than that for the same amount of money. We are endeavouring to maintain and strengthen the only steel mill we have, and the only steel mill we are likely to have. The reason it is important that we have a steel mill is that, if some serious situation were to arise in Europe or in the world whereby it became difficult or impossible for us to import certain vital commodities, the absence of heavy steel would affect our economy most, particularly for the construction industry, as Deputy Quinn said.

Mr. Quinn

As we found to our cost between 1947 and 1950.

Mr. O'Malley

There would be a most disproportionate jolt to the economy if we ran out of construction steel. We will have enough under this proposal for all our reasonable needs. We will, in fact, have an excess and we will have to export that excess, which will be fairly considerable. The only definite contract we have at the moment is an arrangement with a Normandy firm that they will sell 30,000 tonnes of the Irish Steel production in return for Irish Steel marketing 30,000 tonnes of a different type of steel manufactured by the French and not manufactured here. Nonetheless, Irish Steel are already in negotiation with a number of other steel undertakings and steel users in Europe on the question of increasing their exports. The company have expressed confidence that they will be able to negotiate suitable contracts in this respect. They have already, at my suggestion and the chairman's suggestion, taken steps to strengthen their sales and marketing organisation to enable those exports to be achieved. Deputy Kelly is quite wrong when he says that the Exchequer will have to find the whole £45 million a year. Most of the money is borrowed on a commercial basis and on the projections will be repaid to those from whom it is borrowed.

Mr. Kelly

By the company?

Mr. O'Malley

Yes, and by nobody else.

Mr. Kelly

Will the Minister not guarantee those borrowings?

Mr. O'Malley

Yes, some of the borrowings, but it is perfectly normal practice that the State should guarantee borrowings for companies like this. The company envisage under the plans for this project that they can be profitable in the third year from the time that this new project comes on stream. I sincerely hope they are right. While I share many of Deputy Quinn's views on this project, I must confess that I also share some of Deputy Kelly's scepticism. I have had a sickener in respect of a very large project, a larger one than this, a short distance from the location of this one over the last two years. I am extremely anxious, on behalf of the Irish taxpayer, that Irish Steel at Haulbowline will not end up as NET at Marino Point have ended up. I will do all in my power to ensure that I will not be back in a year or two with another Irish Steel Holdings Bill in the same way as I had to come back with new NET Bills to cope with the situation that arose there.

There is now in charge of this company a man of very considerable ability who has proved himself in this country in recent years in the building of a major new plant for a private firm, from which he recently retired as full-time chief executive. I am very happy to acknowledge here that Mr. Kevin McCourt very generously accepted my invitation that he become an executive chairman of this company rather than the part-time chairman he was and that he will do it for the two years that will be necessary to see this project through to fruition. He has already, at Midleton, County Cork, seen successfully into operation the building of a major distillery, the only major distillery that has been built in this country for very many years.

Mr. Quinn

They grossly over-ran the costing of the project.

Mr. O'Malley

I do not believe they over-ran it to any great significance. I have seen a couple of over-runs in that general area lately. I would much prefer to have been involved in Irish Distillers than I would in some other areas. Mr. McCourt has very generously agreed to this. He is not devoting 100 per cent of his time to this job but he is certainly devoting a very high proportion of it. I have every confidence in his ability to ensure that this project comes on stream on time and within budget or as near to being within a budget as one can reasonably be in a project of this kind in these inflationary days. I would like to acknowledge his public spiritedness and his generosity in taking on this virtually full-time job. His willingness to do this, at my request, in the public interest is something which stands out like a beacon today when greed and selfishness are so predominantly a feature of so much we see in the country at the moment. I believe I have dealt with most of the points which have been raised.

If I have overlooked any points, I shall be glad to deal with them. There is one other matter I should like to mention before I conclude, that is, that two drafting amendments have to be made to the Bill. Unfortunately, it is only in the last couple of days that we became aware of the necessity for those when certain contracts were being signed.

Agreed to take remaining Stages today.

Dáil Éireann debate -
Thursday, 21 Jun 1979