I move: "That the Bill be now read a Second Time."
As Deputies are aware from the explanatory memorandum already circulated, the purpose of this Bill is to increase the authorised share capital of Nítrigin Éireann Teoranta by £50 million, that is from £27.5 million to £77.5 million, and the limit on the company's facility to borrow under ministerial guarantee by £50 million, that is from £100 million to £150 million. The actual text of the Bill is of a standard format and I would not expect that it should give rise to any major difficulty.
It is hardly necessary for me to give Deputies much in the way of background information on NET as the company have been the subject of the widest attention and publicity in recent times. Deputies who are members of the Joint Committee on State-sponsored Bodies, whose report on NET was published on 4 May, will be particularly aware of the company's activities and present difficulties.
NET were set up in 1961 as a State-sponsored company to produce nitrogenous fertilisers at Arklow. The company started in a relatively modest way but have expanded over the years to a point where they are now a major industrial and chemical undertaking, providing employment at their plants in Arklow and Marino Point for over 1,150 people. Total assets are more than £170 million and net sales revenue in 1980 was over £60 million. The Marino Point factory produces ammonia, a raw material for the manufacture of nitrogenous fertilisers, from natural gas supplied from the Kinsale Head field. The ammonia is used mainly to produce urea at Marino Point and calcium ammonium nitrate at Arklow — both straight nitrogen fertilisers. NET have been successful in supplying up to 85 per cent of the domestic market for straight nitrogen and the company's operations ensure national security of supply in respect of this strategic commodity for Irish agriculture, as well as making a valuable contribution to the country's balance of payments.
As Deputies are aware, NET embarked on a major expansion programme in 1974 when the company received Government approval to proceed with the Marino Point project. As everyone is aware at this stage, major problems were encountered in relation to this project which resulted in its being delayed by over 15 months. The final cost of the Marino Point plant is now put at £137.3 million, an increase of 116 per cent compared to what NET regard as the first detailed estimate of £63.5 million. I do not propose to debate the complicated and controversial history of the project as I feel that it is already well-documented, particularly since publication of the report of the Joint Committee, last week.
As the construction of this project advanced it became clear to me that there was reason to be very seriously concerned about the cost escalations and delays involved. I have met members of the NET Board and management on countless occasions during the past three years and impressed on them my deep concern about the way the project had developed. In mid-1978 I set up a system whereby NET were required to submit quarterly reports in relation to the project. By the end of 1978 I felt that the history of the project was such as to warrant a confidential independent consultancy review to discover how the capital costs had increased to such an extent and what lessons could usefully be learned from NET's experience. However, I am afraid the hard facts are that, once a project of this nature is put in train, it quickly reaches a point where it is extremely difficult to abandon it and no amount of monitoring or supervision will alter its basic economics.
The increased expenditure associated with the Marino Point project has had a profound effect on NET's finances. This has been exacerbated by the separate problems affecting the Arklow plant, which has been trading at an increasing net loss in recent years. Losses directly applicable to Arklow have grown from £0.8 million in 1975 to nearly £8 million in 1980. The principal reasons for the losses at Arklow have been changes in production technology in the fertiliser industry which made the company's involvement in the manufacture of phosphoric acid and compound fertilisers unprofitable, increased competition from bulk-blenders of cheap intermediate fertiliser products, general overmanning in NET, depressed price levels for fertilisers which have failed to keep pace with input costs and unfavourable industrial relations and labour practices. These problems have forced NET to engage in a very substantial level of borrowings with associated crippling financing charges. NET's accumulated losses at the end of 1979 amounted to £24 million and the loss for 1980 is expected to be £56 million. The total amount of NET's medium and short-term borrowings at the end of 1980 was over £200 million, with associated annual financing charges of £30 million. The company are now in serious financial trouble as their capital base is completely eroded and they are unable to service their borrowing commitments. NET have proposed a capital restructuring of the company, and has requested additional paid-up equity of £90 million, which it says will enable the company to return to a commercially acceptable debt/equity ratio and reduce the very large burden of bank interest which prevents it returning to a viable position in the long-term.
NET are facing an immediate financial crisis as they are obliged to repay a short-term, non-renewable bridging loan of $80 million — equivalent to £50 million approximately — by 29 May 1981. Unfortunately this aspect of the company's finances was not highlighted in the Joint Committee's report. Furthermore, NET have, at present, up to £50 million in existing medium-term loans which are not the subject of ministerial guarantees under the NET Acts and it is desirable, in the context of any new legislation, that provision should be made for formal guarantees in these cases. These guarantees will also enable a marginal reduction to be secured in respect of the interest rate for the medium-term loans in question.
The Government have concluded that the immediate financial difficulties facing NET must be tackled now and the specific purpose of the present Bill is to enable the $80 million bridging loan to be repaid by 29 May 1981 and to provide formal guarantees for the existing unguaranteed medium-term loans of £50 million. Failure to tackle these problems at this juncture would, in my opinion, inevitably precipitate the immediate closure of the company.
I must stress at this point that the present Bill does not mean that the Government have brought their examination of NET's prospects to a conclusion. In this regard, the Government share the view of the Joint Committee that further study and specialist advice is necessary under a number of headings, before any final decisions can be realistically taken about NET's future. Some analysis has already been undertaken of the possible options open to the Government but it is clear that further work needs to be done as a matter of urgency. With this in mind, the Government have now decided to establish an inter-departmental committee of senior officials to consider in detail all the options for the future of NET with a view to reporting to me as soon as practicable so that proposals can be presented to the Government at an early date. It is my intention that the committee will use independent specialist consultants to advise on specific aspects of this matter where they consider it necessary. Obviously one of the matters which will have to be considered is the dramatic change which has taken place in the energy field since the original decisions relating to Kinsale gas were taken. There may be better uses to which this gas can now be put and the full implications for this in relation to employment, balance of payments, energy efficiency and returns to the Exchequer will have to be examined.
Without prejudice to the future deliberations of the proposed inter-departmental committee, I must say that I have been impressed by the resolute action taken by NET, and in particular the company's new managing director, during the past year in attempting to restore order to the company's operations and finances. I was also glad to see that this action was endorsed by the Joint Committee. As a result, I must admit that I am now more optimistic than I was some months ago about the company's future prospects. The action to which I refer comprises the closure of the unprofitable Arklow Gypsum subsidiary, the retirement from phosphoric acid and compound fertiliser operations at Arklow, a reorganisation of the company's management structure and a general slimming down of excess manpower with a view to increasing productivity. It is, of course, deeply regrettable that action of this nature, involving the loss of a very significant number of jobs, has to be taken. However, it must be recognised that these measures are absolutely necessary if the company are to have any prospect of future viability.
I am confident that the Nítrigin Éireann Teoranta Bill will commend itself to the Dáil and I recommend the Bill for its approval.
