I should like to inquire about the procedure whereby these guarantees are given. Do Bord Bainne have to apply each time in respect of loans from banks here or abroad or are they given blanket permission in respect of credit up to a certain amount?
Dairy Produce (Miscellaneous Provisions) (Amendment) Bill, 1979: Committee and Final Stages.
Section I agreed to.
SECTION 2.
Question proposed: "That section 2 stand part of the Bill."
I understand the position is that a guarantee letter is sent to the lending agencies who accept the provisions.
In other words, each time Bord Bainne negotiate a loan they must go to the Minister who writes a guarantee letter which is sent to the bank?
Yes.
What is the form of the guarantee? What does the State guarantee do? In the event of a default by Bord Bainne will they pay the full amount?
Yes.
Obviously the giving of the guarantee is consistent with EEC rules?
Yes, I understand it is.
Is the Minister satisfied that the sum of £90 million is adequate? I know it is a generous increase on the existing figure of £40 million but currency is depreciating at a very rapid rate. Is the Minister satisfied that the figure is sufficient?
I am satisfied that it is sufficient. The increase State guarantee of £90 million would represent coverage for close on 40 per cent of the board's estimated peak borrowing requirement for 1980.
Do I take it from what the Minister has said that Bord Bainne have some loans that are not guaranteed? If £90 million covers only 40 per cent of their peak borrowing, I presume there must be other loans?
They have their own assets and I take it they would be used also.
Does the Minister mean they could borrow against their own assets?
Yes.
At one stage their assets were quite low but I gather they have been built up to a quite substantial sum. Would they be about £30 million?
The board have been building up their own assets and at present they are meeting a sizeable proportion of their borrowing requirements through credit from deferred payment arrangements provided by their suppliers. In 1978 about 30 per cent of the board's borrowing requirements were met in this way.
That is based on the security of their own assets?
Yes. Every encouragement will be given to the board to build up their assets and to lessen the need for a State guarantee.
I gather that the assets of Bord Bainne came to about £18 million in 1978 and I think they would be about £20 million this year. Am I correct in that?
Their assets would be £13.7 million.
They have built up their assets by a levy on milk production. If the Government are ungenerous in the giving of a guarantee and insist that in order to raise the money Bord Bainne must seek some other means of security this will put pressure on the board to increase the levy on milk production. Although I concede that the sum of £90 million is a generous improvement on the existing level of £40 million which was set in 1976, the time could come when Bord Bainne will even run up against the top of the £90 million. Already they are imposing a quite significant levy on milk in order to build up their assets and if this guarantee runs out they will have to increase the levy. At the moment I think it is .2p per gallon and it could be increased considerably if the guarantee of £90 million is insufficient. I should like the Minister to ensure that the Department keep under review the adequacy of the limit of £90 million with a view to increasing it if necessary.
I will do that, but I think that at the moment the £90 million is adequate. In fact, there have been no claims under the State guarantee so far and no question of expenditure by the Exchequer has arisen or is likely to arise. We will keep the matter under review and we will also encourage Bord Bainne to build up their assets.
How do Bord Bainne decide whether they should seek to secure a loan by State guarantee, on the one hand, or, on the other hand, by offsetting it against their own assets? Is there any type of loan that they tend to rely on? Do they engage in long-term loans or short-term loans?
I understand the guarantee applies proportionately to all loans taken out by Bord Bainne.
I see. The Minister agreed with me that when the board wanted to borrow money from a particular bank they went to the Government and the Government gave them a letter of guarantee which they presented to the bank. I took that to mean the State was undertaking to cover that entire loan. Now the Minister is saying—if I read him correctly—that the guarantee covers a proportion of all their loans and not the entirety of any loan. Which is it, or have I misunderstood the Minister?
The position is that if the maximum borrowing by the board is £90 million, it is covered in total. If the borrowing is £100 million, £90 million would be covered by the State guarantee.
Supposing I lend money to Bord Bainne this year for two years. This year Bord Bainne's total borrowings are £80 million and I lend them £10 million. In the event of their defaulting immediately I am covered this year. It is a two-year loan and next year, if Bord Bainne for some reason treble their amount of borrowings up to £240 million, my situation has not changed. I have still got the letter of guarantee but I discover when I look for my money, that the State guarantee covers only a proportion of the total, or about 40 per cent of the total of my loan. When I got the guarantee it seemed it was for the full amount but, because of other transactions undertaken by Bord Bainne without my knowledge, suddenly my guarantee covers only a proportion of the amount I am owed by Bord Bainne. It seems unusual.
I understand the lending institutions accept the conditions of the guarantee and loans made by them are covered by the guarantee. The conditions set out how it is to apply to loans or proportions of loans. I do not know whether I am making myself clear.
It is not clear at all. I appreciate the Minister's dilemma. This Bill is the responsibility of the Minister for Agriculture and not the Minister of State. I presume that is the case.
I did not expect all those questions on high finance.
We are here to approve of this Bill. We should be satisfied that we know what we are agreeing to before we agree to it. The Minister said the institutions who lend money to Bord Bainne agree to the conditions set to the guarantee. He has not told us whether those conditions include either a guarantee of the entire amount of the loan, or a fixed proportion of the loan, or a proportion of the loan which could vary depending on the overall level of borrowing by Bord Bainne at a particular time when they go bust, if they go bust.
If I were lending money to Bord Bainne I would not accept a State guarantee which said that if the board go bust tomorrow 50 per cent of the loan will be covered, but if they go bust in ten weeks' time, having borrowed a great deal more money, only 10 per cent of my loan to Bord Bainne will be covered by the State guarantee. I would want to know what proportion of my loan to Bord Bainne was covered by the State guarantee. I would not be inclined to accept a condition which said it could vary depending on whether Bord Bainne contracted other loans subsequently, and I would have no control whatever over their contracting them.
We should know the exact nature of the State guarantee. Does the mere enacting of this legislation mean that automatically all borrowings by Bord Bainne up to the limit of £90 million are covered straight away, or must each individual loan be covered and, if so, under what conditions is each individual loan covered? That brings us back to the first point which the Minister apparently was not able to answer. He was not able to tell us what are the actual conditions imposed. Simply telling us that these people accept the conditions is of no use to us. We want to know what the conditions are. We are the other side of the equation. We are the people who are giving the guarantee. We are as much entitled to know what the conditions are as anybody who is lending money to Bord Bainne.
I want clarification on two points. The Minister said earlier that 40 per cent of the board's borrowings are guaranteed by the Government. Is that correct? Therefore the 60 per cent in excess of that which they would borrow——
That is what the Minister said.
I find it very hard to follow. The Minister said the board would be encouraged to build up assets. It was conceded that these are mostly levies—.2p per gallon or whatever it is. Have Bord Bainne any other way of building up assets except by way of levies? Have they profits, or what proportion of their assets comes from the levies? Have they profits on sales and so on? How much of the £13.7 million which the Minister gave as their present assets, or their guaranteed assets, or their registered assets, came from levies and will come from levies in future? It seemed to be indicated that the House covers 40 per cent of the borrowing. Will the guarantee for 60 per cent of their borrowings have to come from their own assets?
The point about 40 per cent of the borrowings being guaranteed by the Goverment does not seem very clear. My understanding is that up to £90 million will be guaranteed by the Government, irrespective of the percentage of borrowing. During the peak period of milk production the board may have stockpiled assets amounting to £140 million. With assets of only £13 million, who will guarantee their extra borrowing? Deputy Bermingham implies that the Minister stated that the Government will guarantee only 40 per cent of the borrowing and that the board will guarantee the remaining 60 per cent.
I said that that was the norm at peak time.
When the assets of the board are only £13 million, how can they borrow up to £140 million?
The State guarantee which covered 40 per cent of the board's peak borrowing in 1973 had, despite its doubling in 1976, fallen to a level at which it covered only 20 per cent of peak borrowing in 1978. An increased State guarantee of £90 million would represent coverage for close to 40 per cent of the board's estimated peak borrowing requirement for 1980. That is what I said.
The Minister did not say all that.
I did not say all that but I gave Deputies the key.
The Minister should answer the original question put to him. Are individual loans guaranteed 100 per cent or is only a percentage of all loans guaranteed?
The paragraph which sets out the proportion of the loan covered reads:
The amount of any particular loan guaranteed at the time when a guarantee has to be honoured shall be determined by the proportion which that loan bears to the total of all eligible loans made by all the specified banks to the Society multiplied by the aggregate amount of principal which the Minister may be liable to pay as determined by section 6 (3) of the Act.
So it is a variable proportion?
That is right.
Can we take it that the majority of loans at peak periods would only be guaranteed to the tune of 40 per cent in 1980?
The co-operative society would also have creditworthiness plus their stocks.
I am talking about guarantees. Is the Minister saying that £90 million will only be 40 per cent of the borrowings at peak periods in 1980.
That is right.
Is the Minister satisfied with the position?
This is the position that has obtained all the time.
Are we to take it that their own creditworthiness and their assets would be a guarantee?
And their stocks.
Is the Minister satisfied with the position?
Yes.
And that it will not in any way hinder the operations of the board?
There is no danger.
In view of the current credit squeeze, is the Minister satisfied that the board will have sufficient scope to buy in produce?
I am satisfied that they will.
Is the Minister saying that the assets would be the stocks piled at peak times and that the assets would increase to cover the remainder?
The assets of £13.7 million would be made up of share capital of £6.8 million, capital reserve of £2.4 million and revenue reserve of £4.5 million, which gives a total of £13.7 million.
Would the board also have stocks at peak periods?
They would.
Apart from stock, what other form do the assets of the board take? Is it mainly stocks and shares?
I imagine so.
How are the assets of £13.7 million made up?
I gave that information to Deputy Bermingham. It is made up of share capital of £6.8 million, capital reserve of £2.4 million and revenue reserve of £4.5 million, giving a total of £13.7 million.
Question put and agreed to.
SECTION 3.
Question proposed: "That section 3 stand part of the Bill."
I am not happy with the section. It extends the period up to which the guarantee can be granted to 31 December 1983. I gather that the existing guarantee would have run out at the end of the year.
Yes.
In other words, the board are up against a time limit. If this Bill has not been passed before Christmas there will be no guarantee after 1 January 1980. A guarantee period up to December 1983 is better than the period allowed in the previous Bill, which was 18 months from the time of the new guarantee until its expiry. However, three years is still a short period. It still means that the board will have to look for another guarantee during 1983. There will be a continuing dependence on a political decision to allow them to continue their loan. Towards the end of the period in which the guarantee is operative there will be some doubt in regard to contracting new loans. For instance, during 1983 the board will only be able to offer a State guarantee up to 31 December. The remaining six months of the loan will not be covered unless a Bill is passed in the Dáil. The passing of a Bill would depend on the political situation at that time. There might be a minority Government in office. A difficulty of that nature could arise which would have nothing to do with milk production but would have everything to do with the balance of power in the House at that time.
Is this a good way to be carrying on? I question whether we should set such short periods at all for the extent of the guarantee. Should we not have set the guarantee to expire in 1987 and leave it at that? As far as I know Bord Bainne are unusual in relation to this short time limit for the extent of the State guarantee. In most companies the State guarantee seems to have a pretty unlimited duration and the only time that legislation comes up in the House is when the amount of the guarantee is being increased. Will the Minister say why this time limit is so brief?
The long-term object is to arrive at a situation where there will be no need for a State guarantee for borrowing by the board and the guarantee can be dispensed with. This could be achieved if the board continue to increase their work allied to the acceptance of their creditworthiness. The extension of the State guarantee for a period of four years allows a considerable opportunity to make progress in these areas. There is no need to worry about the possibility of having to come back to the House again because Bord Bainne had to come back to the House in 1976 when the guarantee was increased to £40 million and again in 1977 when the guarantee was extended for a further two years. The present extension is sufficient and in the meantime every encouragement will be given to the board to build up their assets and dispense with the need for a State guarantee.
It must be recognised that the income of the board of .2p per gallon is a very slow and tedious way to build up assets. My information is that over a long period they have built up £13.7 million in assets. I question the continued increase in milk production but I hope it will take place because it is important to our economy. There is no way in which Bord Bainne can build up, in a short period, the type of assets necessary for this level of borrowing. The question raised by Deputy Bruton is important. Why is it necessary to have an expiry date of 31 December 1983? Is a date fixed for the expiry of other State guarantees in other State bodies? Why is there a need for a date? With the present income of Bord Bainne they could never build up sufficient assets to guarantee borrowings of from £90 million to £140 million, even in the next ten years. If milk production increases, their income will rise, but if not, their assets will go down. I cannot accept the Minister's answer in connection with the question of their building up that type of assets because there is no way in which they can do it.
The Minister says that the board will be encouraged to build up their assets over this four-year period. How can they build them up? The .2p of a levy would not build them up to any significant extent in the four-year period. Does the Minister intend to have issues of share capital because the share capital accounts for £6 million? How does the Minister foresee that the board will be encouraged to increase their assets?
Bord Bainne is a co-operative and not a State body, so they cannot be compared with other State bodies who have looked for an extension of the State guarantee from time to time. There are many ways in which Bord Bainne can build up their assets. They can build them up by diversifying into different products, by encouraging expansion of their industries and so on. Indeed their assets are increasing in value all the time. It is not for me to say exactly how they can extend their creditworthiness. The co-operatives have been doing a very good job in this regard and there are many ways open to them which I do not want to suggest here.
That is not satisfactory. The Minister said that they would be encouraged to extend their assets. If the Minister is to encourage them to do something, surely he must be able to say how he expects them to do it. I asked if they would be encouraged to increase their share capital, to increase the levy or by diversifying their business. I do not know much about high finance, but I know that if one is to diversify one would need to borrow further capital and Bord Bainne need to increase their assets.
All the ways mentioned by either Deputy Bermingham or myself will help the co-operative to build up their assets. This legislation will give them four years, and at that stage it will be time enough to start directing them as to how they might increase their assets. It is not for me to say at this stage how they should increase their assets whether by extension of their share capital, the levy or whatever.
Do the Minister and the Department expect them to build up their assets considerably in that four-year period?
They have been building up their assets steadily over the years and it is expected that that trend will continue.
Can the Minister give us a breakdown of the £13.7 million?
I have given it already.
The Minister is talking in terms of 12 or 14 years for the £13.5 million. The Minister must understand that the type of assets needed to guarantee their type of borrowings would need to be very substantial. I can see no way in that four-year period that they can build up their assets to that degree.
They are being encouraged to increase their assets. We could not expect them to build them up to £90 million in four years.
The Minister said it was the objective that the need for the State guarantee would be eliminated and that the board would ultimately be able to cover all their loans by their own creditworthiness and assets. Is it fixed Government policy that Bord Bainne's guarantee situation is only temporary? What is the appropriate time the Government expect Bord Bainne to reach the stage where they will no longer require the State guarantee?
It would be very hard for me to put a time on that because it will depend on how fast Bord Bainne build up their assets. The board have increased their assets five-fold in the past six years, from £2.4 million to £13.7 million. If that trend continues they will be able to meet a sizeable proportion of their borrowing requirements even in four years' time.
I appreciate that, but I presume the Government have some idea about the length of time this guarantee will be necessary. The fact that Bord Bainne are building up their assets is not an accident; presumably it is a matter of deliberate policy by the board arising from a message given to them by the Government to the effect that they should do so in order that a Government guarantee would not be necessary. If that is so, the Government and Bord Bainne must have some clear target in mind as to the date at which the guarantee will no longer be necessary. Otherwise this would be a sign of very sioppy thinking. If they did not have a particular date in mind the board would not have any target to work for.
It would be unfair to expect that a definite date be settled at this time because there are a number of imponderables. Our target is to work towards a situation where Bord Bainne can dispense with the State guarantee entirely. When we can achieve that is another thing because it depends on so many different things. That is our target and Bord Bainne realise it.
That is not very clear because the rate at which they work towards that object depends on the target date. If, for instance, the Government set a target of 40 years, it would be necessary for the board to work at half the rate necessary if the target was for 20 years. The amount of the levy imposed by Bord Bainne on milk producers must be determined by some target set by the Government. Otherwise they could not settle on a figure. Assuming everything continues more or less as it is, and assuming that the present levies continue, when would the guarantee no longer be necessary?
It would be impossible for me to put a time on this because the levy on its own is not sufficient. As I said, over the past six years the board have increased their assets from £2.4 million to £13.7 million. That trend is in the right direction. If at the end of a four-year period it is found that the board are still not in a position to borrow on the strength of their own assets, I am sure whatever government are in power will be prepared to give them a further extension because we all know the very important contribution the co-ops are making to the nation.
Question put and agreed to.
NEW SECTION.
Amendment No. I proposes a new section to replace section 1. There is a minor printing error in the amendment as printed on the green sheet. In line 5 there should be a comma in front of the second word "he".
I move amendment No. 1:
In page 2, before section 4, to insert the following section:
"4.— (1) The following subsections are hereby substituted for sections 6 (2) and 6 (5) of the Principal Act:
`(2) Whenever the Minister guarantees a loan under this section he may guarantee in such form and manner and in such money (including money in a currency other than the currency of the State) and on such terms and conditions as the Minister for Finance may sanction, the due repayment by the Society of the principal of the loan or the payment of interest on the loan, or both the repayment of such principal and the payment of such interest.
(3) Moneys obtained by the Society on foot of a loan guaranteed under this section shall be used solely by the Society for the acquisition, transportation, storage and insurance, in the course of its ordinary, business, of dairy produce.'.
The following subsection is hereby inserted after subsection (11) of section 6 of the Principal Act:
`(12) In relation to a guarantee under this section in a currency other than the currency of the State—
(a) each of the references to principal in subsections (3) and (7) shall be taken as referring to the equivalent in the currency of the State of the actual principal, such equivalent being calculated according to the rate of exchange at the time of the giving of the guarantee;
(b) the reference to moneys in subsection (9) shall be taken as referring to the cost in the currency of the State of the actual moneys paid."'.
The amendment I am proposing to sections 6 (2) and 6 (5) of the Principal Act and the addition of a new subsection (12) to that section is solely to make it clear that the State guarantee may cover borrowings in currencies other than that of the State. It is essential to clarify this point as much as the board's borrowing requirement is met by lending institutions outside Ireland and in currencies other than the Irish pound.
The need for this amendment only came to light when arrangements for circulation of the Bill had been made. The provision as outlined in the amendment brings this guarantee into line with other similar State guarantees. The amendment of subsection 6 (5) of the Principal Act is already in the Bill under section 4. It has been included again in the amendment for ease of reference so that all section 4 would appear in one document. This amendment replaces section 4 of the Bill as initiated.
This amendment is acceptable. The only point I want to question arises from the fact that the Minister is now authorising borrowings in foreign currencies. What happens if Bord Bainne borrow up to £85 million, mostly in deutschemarks? Because of changes in exchange rates, the deutschemark suddenly increases in value. Instead of having two DM to the £ there is only 1½ DM. When the money was borrowed it was equivalent to £85 million but it now suddenly becomes equivalent to £120 million. This means that without any further borrowing the board have borrowed more than the £90 million. How exactly does the upper limit operate in that situation?
I realise some assurance can be drawn from the fact that the punt and the deutschemark are within the EMS but there is nothing in this section which says that Bord Bainne could not borrow from English banks in £'s sterling. The British are not in the EMS and their currency is, therefore, liable to a much wider range of fluctuation than currencies like the punt and deutschemark which are in the EMS. There is no guarantee that the EMS will continue forever. This point should be clarified. Does the £90 million limit cover the original amount or is it an amount which is adjustable upwards depending on fluctuations in exchange rates to cover all loans contracted in good faith at the time?
Section 6 (12) explains this. In relation to a guarantee under this section in a currency other than the currency of the State, each of the references to principals in subsections (3) and (7) shall be taken as referring to the equivalent in the currency of the State of the actual principals, such equivalent being calculated according to the rate of exchange at the time of the giving of the guarantee.
What about the exchange risk? Would this be a change of policy? I presume that up to now Bord Bainne had all their loans from the banks of the nation. Was there ever an occasion when Bord Bainne had to borrow outside the State?
Yes, they did.
Who will be responsible for the exchange risk? This is a serious question because the exchange risk can very costly. When we speak of £90 million it is a sizeable sum and could put paid to some of the assets of Bord Bainne if they are responsible. Have the Government any responsibility in this matter as far as the exchange risk is involved?
They have borrowed outside the State. On 31 December 1977 the amount was £100 million sterling; in 1978 £124 million sterling; on 30 November 1978 IR£86 million and £59,200,000 sterling, $19 million and IR£16,500,000.
Who carried the exchange risk at that time?
It is normal for the borrower to carry the risk.
The State would not guarantee the exchange risk. Is there a definite policy on this? They are allowed to borrow outside the State but are they responsible for any loss on the exchange?
The State guarantee would cover the principal only.
Only?
Yes.
Would the principal not increase if the exchange rate went against us? If one borrows francs or whatever and the exchange rate is such that the punt is of less value in comparison does the principal not increase as well? If one owes IR£100 million and if the rate of exchange is such that one must give more punts does the original loan not increase also?
The State guarantee covers the principal at the rate of exchange at the time of the giving of the guarantee. This is a normal procedure.
It would be a loss to the board.
Yes.
Could the Minister give us an indication of the level of borrowing during the past year?
That hardly arises on the amendment.
The total borrowing at the end of 1977 was £100 million and at the end of 1978 it was £124 million.
How did that vary throughout the year? As far as milk is concerned there is a peak period each year. Does it vary from 1 January to the end of the year?
I do not have that information.
If we are to agree to the amendment I take it we are not able to discuss the terms of section 4 any further as it appears in the original?
It automatically deletes section 4 as in the original.
It is stated that the moneys obtained by the society on foot of a loan guaranteed under this section shall be used solely by the society for the acquisition, transportation, storage and insurance, in the course of ordinary business, of dairy produce. The last time the Bill came before the House the Minister and I had an argument as to whether the terms were sufficient. We were urging something along the lines of what is now in the amendment which he did not accept at that stage. I wonder if the terminology is sufficient. I realise that Bord Bainne is not engaged in processing but in marketing. A situation could arise where they had goods in store on which they might wish to carry out processing to make them more marketable as a result of change in market demand. If they had to borrow money to do this the terms of the amendment would not cover it. It only covers transportation, storage, insurance or purchase of the goods. Has that possibility been adverted to by the Minister? Would he consider extending the terms of it?
The 1977 Bill was drafted as adopted on the authority of the previous Government. The activities covered by the guarantee are acceptable to Bord Bainne.
That is not an answer. The Minister should answer the point made and not come up with that silly type of answer. Does the Minister not consider there is a possibility that processing might be necessary at some time?
If so, would the guarantee cover it?
The only answer I can give is that it could be considered if it does arise.
There would have to be another Bill to allow it.
Does the Minister not think it necessary to put in a provision?
Not at this stage.
If the occasion arises where it is necessary a new Bill will have to come before the Dáil.
If it is necessary it can be considered. I am sure a new Bill can be introduced.
In view of the fact that it is not covered as far as this Bill is concerned, is the Minister free to accept an amendment?
It is not necessary at this stage.
Amendment agreed to.
Section 5 agreed to.
SECTION 6.
Question proposed: "That section 6 stand part of the Bill."
It is very bad drafting practice to have titles containing brackets. There should be one title. This should be the Dairy Produce Bill 1979. There is no other Dairy Produce Bill and if there is another one it could be called the Dairy Produce Bill, 1979 No. 2. To have (Miscellaneous Provisions) (Amendment) 1979 is bad English and a complicated title. I have looked at legislation in the last century when they were supposed to be far more stilted than we are. They had simple direct titles of one or two words which conveyed exactly what they were about. This title conveys nothing of the meaning of the Bill but increases its length in an unnecessary fashion. This is probably the fault of the parliamentary draftsman's office rather than the Minister's, but I should like to convey to him and to them that Bills should have simple titles that would make for easy reference and not have this type of garbage.
Perhaps the parliamentary draftsman will take note of what the Deputy said. They are the people responsible.
I know that.
Question put and agreed to.
Title agreed to.
Agreed to take remaining Stages today.
Bill reported with amendment and passed.
This Bill is certified a Money Bill in accordance with Article 22 of the Constitution.