I should like to ask the Minister if the borrowings that have been incurred already by Irish Shipping Limited by way of bridging loan, £10 million, have been the subject of any State guarantee?
Irish Shipping Limited Bill, 1982: Committee and Final Stages.
Section 1 agreed to.
SECTION 2.
Question proposed: "That section 2 stand part of the Bill".
As I stated earlier, the borrowings were made with the permission of the Minister for Finance.
What did the Minister mean when he said, "with the permission of the Minister for Finance"? His permission is irrelevant. It is a question of guarantees. Banks do not lend money on permission; they lend it on guarantees.
A guarantee was not sought but the Minister knew that the arrangements were being made by Irish Shipping Limited.
Will the Minister tell the House if that money was borrowed from the bank or banks that will form the consortium that will provide the ultimate funds?
No.
Will that sum be included in the moneys to be provided by this consortium so as to be repaid to Irish Shipping Limited? If that takes place will it include the interest accumulated to date?
Yes.
Has all the £10 million been expended by Irish Shipping Limited in relation to payments to Verolme? That is the reason why I queried the financial structures of the payment of the £28 million for this bulk carrier and the House is entitled to know precisely what we are entering into. It appears — I have no previous knowledge of the arrangements — that £1.42 million of State equity money is being provided and I presume it has by now been transferred to Verolme as payment for work done since the contract was signed in February 1981 and since completion date is December 1982. I presume that the £10 million has been paid over. Am I correct in my assumption that so far this ship has had expended payments on it of £11.42 million?
That is correct.
Are we assuming then that the bridging loan is to be subsumed in the leasing arrangement?
The Deputy is correct.
Am I correct in assuming that approximately £26.6 million will be a leasing arrangement or will it be the actual amount of the guarantee? Will the "special financing arrangement which is now proposed", as mentioned in the Minister's speech, total £26.6 million?
What we are doing in this Bill — we will come to it under subsection (2) — is guaranteeing an amount of £50 million upper limit. The Minister's power cannot be exercised beyond that sum.
How much will have to be paid by the consortium in this case?
That is within the upper limit. The actual turnout cost, of course, will determine the amount put up. We are giving round figures. There has already been an increase on what was originally estimated but the actual amount will depend on the final cost of the ship.
What does that look like at this stage? The ship is due to be finished in less than eight months.
I mentioned that in my speech.
£28 million?
£28 million is what was mentioned.
How much is going to be paid by the consortium? We know that the ship is going to cost £28 million; there are financial charges on the bridging loan so far and there will also be a taking-over by the consortium. What is the rough estimate at the moment?
All the money will be put up by the consortium. That is the simple answer.
Could we know how much "all" will be.
That is impossible to say at this stage. As the Deputy might gather, the exact cost will not be known until all the bills are in and the ship has been built.
The Minister may feel that we are cavilling here——
No, I do not.
——unduly. Could I make the point that a bridging loan of £10 million has been obtained. Bridging finance even for a State company, is extraordinarily expensive in these high interest rate times. That has, presumably, been paid over to Verolme by now at the half way stage. How much has it cost? I alleged initially that it was mostly on intuition rather than the real facts as emerging. It seemed, on the basis of the original arrangement which was put to this House, that in December 1980 the ship was going to cost £25 million. £14 million was being funded — if you like — by Irish Shipping, by way of £7 million equity and £7 million by borrowing — £7.1 million in each case to be exact——
That is correct.
——and the State was giving a direct £11 million subsidy of State subvention to Verolme. What do Verolme get at the heel of the hunt out of all of this at the end of the construction period? What is the State's subvention to that company at the end of all of this? I ask this as one who has a deep interest, I can assure the Minister, in the future of the shipyard, like my former colleague, Labour spokesman Deputy Corish who, in December 1980, welcomed the proposed construction at Verolme.
However, I am a firm believer that if anything is going to be built in this country, whether it be a fertiliser factory, a bulk carrier, an ESB power station, or an airport, or whatever we build, we must know, appreciate and understand the true cost of what we are doing. That is the thrust of my argument. I would like to know the true cost here. Apparently, a degree of leasing banking funds will be made available and, the Minister has disclosed, repaid over a period of 12 years. Apparently, the arrangements are not yet finalised and I appreciate that there are degrees of confidentiality, that when the Department of Finance enter into, or guarantee legal arrangements, we do not want all the details trotted out for everyone to have an analysis of them. The State here in the Dáil guarantees £28 million at the top. We have already put in £1.42 million of State equity. We are entitled to know where exactly the money is going. Otherwise joint committees, State-sponsored bodies and public accounts committees are all irrelevant. We will be talking in two or three years' time as to what happened. It would be good to know now. I support the Minister. Let us finish matters up, but let us know what we are doing.
I accept what Deputy Desmond has said, that probity and clarity are important in so far as the financing of these areas are concerned. He proceeds to list a number of ventures and as far as I can see, an attempt at guilt by association is being made. The fact is that the figure as given originally by Deputy Desmond are the correct figures. He said £7.1 million, £7.1 million and £11 million. As of now, the estimate is £28 million and the interest paid during construction will be included in the lease, which is normal practice in this case. What I can tell him now, as firmly as can be said at this stage, is that we are dealing with £28 million and we are dealing with guarantees in this Bill because we were instructed by the Attorney General that we did not have any powers with regard to Irish Shipping without taking these steps.
With regard to the sum which is going to be put up by this consortium to buy the ship, the Minister says that we will not know the sum total until all the bills are in. Is that what he is saying?
I dare say that the Deputy will agree that even in building a small room as an addition to this House, an exact figure of the final cost cannot be given before work commences. We are giving a figure as tight as it is possible to estimate as of now.
In regard to the rent — as we will call it — which the consortium will get for the vessel has it been decided how much Irish Shipping will pay and how much the State will pay, or the percentages or proportions?
The Deputy's question is how much the State will pay and how much Irish Shipping will pay. What we have told Irish Shipping and what I have told the House in reply to the debate is that Irish Shipping will find the financial arrangements as good as originally outlined. What has now been referred to by Deputy Desmond has been referred to already in this House. In other words, Irish Shipping will not have to pay any more than under the original estimate. That is why Irish Shipping are in total agreement with the arrangements put before the House.
Could the Minister tell us what the arrangements are and how much it will cost?
Which way?
How much money will Irish Shipping have to pay?
The original, as Deputy Desmond has said was £7.1 million equity, £7.1 million loan. That was the limit of their responsibility under the original agreement and that will be the limit of their responsibility under the new arrangement.
Irish Shipping might not have any liability at all under the equity, unless they had profits to remunerate the equity. The loan from Shipping Finance Corporation would involve them in repayments, we can understand that. Surely it is possible for the Minister to calculate a notional return on the £7.1 million equivalent of equity which will now be in the funds provided by the consortium?
As the Deputy will have gathered from what I have said already, the original commitment was for £7.1 million loan. The terms of the loan were 8 per cent for 8 years. As I have stated, there is no deterioration in the conditions from the original arrangement.
May I take it that what Irish Shipping will have to pay will be 8 per cent on £7.1 million over 8 years?
That is correct and the rest of their commitment is equity.
Yes. The balance to the consortium will be found by the State?
Yes.
Will that be provided for in the annual current Estimates of the Department or will it be a capital charge?
It will be a current charge.
Will it be spread over 12 years?
Yes.
There will be an annual payment for 12 years. Have you any idea of approximately what that would be in the next financial year?
The Deputy will know the commitment, he will have a general idea of the interest rate and he could divide by 12.
The Minister is being simplistic in asking me to make it up in that way because obviously it is more complicated. I presume this arrangement is at an advanced stage.
If I were thinking of spending £28 million in the morning and if I were going about it in this way I would be in the horrors, the political horrors. The House is entitled to know — I do not want to know the name of the commercial bank, domestic or foreign——
The Deputies could make a rough calculation. I cannot be held tightly, but if you take 12 by three you will be roughly right. The current charge will be about £3 million.
Surely, if the Minister is coming to the House to tell us that a new and special financing arrangement is being proposed he must know what the leasing terms are.
I have told the House that the actual arrangements have not been finalised. I have given the Deputy the only figures I can in present circumstances. It is over a 12-year period. It will be a charge to current account which will be subscribed annually, and as far as Irish Shipping are concerned the terms will not be a disimprovement on the arrangements originally proposed.
In order to get the operation under way, Irish Shipping had to take out a £10 million bridging loan. Presumably they have had to meet the interest charges on the bridging loan and that is radically different from the proposal of December 1980 when they had to take a £7 million equity stake and had to borrow £7 million. Then they got a £10 million bridging loan with which to build a ship.
I understand that has been repaid to them, with interest, by the State.
It is being rescheduled but it is more expensive.
But the State will carry the interest.
What we want to know is how much it will mean in the Book of Estimates next year, how much it will cost? Will it be £3 million or £12 million? I do not want the House to misapprehend because when we look at the Irish Shipping accounts for 1983-84 it will be easy for people to stand up here and get hammered, being told that the workers in Cork would be losing their jobs. The workers in Cork, riveting the ship today should know the cost and the way the costs will be repaid. It will be over a short term, but in 12 years the ship will be on the high seas carrying steel, timber or coal, it will not be a supertanker class, and it will have to be earning an enormous capital return to be a profitable venture for Irish Shipping.
Deputy Desmond should not have any worries about people's views on the financing of the ship. He is entitled to probe in detail any expenditure being made, he is entitled to probe all the financial arrangements for the building of the ship. The only criticism I make of him is that he is not entitled to take other things into account. The arrangements that are being made, and they have not been finalised, do not put me in a position to say that £X or $X will have to be repaid annually. I gave a figure of £3 million as a kind of indication, but the lease will be at variable interest rates and that makes it difficult to do exact sums. It will depend on international rates at given times. I cannot give the House figures as if I were reading from a minute. The Minister for Finance and the Irish Shipping board are making the arrangements at the moment. The matter has reached a stage when they are in total accord and are well pleased with the way things are going. Irish Shipping will not be worse off financially out of the deal than they were out of the original deal proposed to them. I should like to be able to read out the exact figure year by year.
Can the Minister indicate the mechanics of the guarantee? The Minister will be guaranteeing the moneys being put up by the consortium and the consortium will have the Minister's guarantee, plus, I suppose, a mortgage on the ship.
The Bill gives power to the Minister to guarantee.
Who is the Minister going to give the guarantee to?
In case there is any default the Minister is the final guarantor that the moneys will be paid.
Guarantor to whom?
To the financial institutions.
But in effect, it will be the Minister who will be repaying these financial institutions and not Irish Shipping.
Yes.
That would be the reality behind whatever legal document is drawn up.
Yes.
So, in effect, there is no guarantee being given in reality to Irish Shipping. They will have the normal commercial borrowing from the Shipping Finance Corporation that they would have had in the ordinary way.
That was the point the Deputy made in his original speech, but he felt that it was important to indicate that this was not in any way an effort to subsidise an ailing company or something which would in fact affect its standing in the world of commerce. I made that quite clear in my reply to the debate that there was no such element in this.
Who then funds the interest on the £10 million bridging loan taken out by Irish Shipping?
I replied to that already. The lease will incorporate all that. I made that quite clear a few moments ago.
Will it be borne by the State?
Interest paid during construction will be included in the lease. This is the normal practice.
I think I am going to build a ship as quickly as possible.
Question put and agreed to.
Section 3 agreed to.
SECTION 4.
Question proposed: "That section 4 stand part of the Bill."
Am I right that there is no question of any repayments having to be made to the Minister arising out of this guarantee?
Yes.
So for some future scenario, if there are borrowings that fail to be repaid and the borrowings were made in foreign currency, what exchange rate would be taken?
The exchange rate pertaining at the time.
At the time the moneys were obtained or at the time of the repayment?
At the time of the repayment.
In the previous section it is the other way round. The exchange rate will be calculated at the rate prevailing at the time of the giving of the guarantee.
What section is that?
Section 2(3). It says that when the Minister has guaranteed moneys borrowed in a foreign currency the equivalent of the foreign currency shall be calculated at the exchange rate at the time of the giving of the guarantee, not at the time of the repayment.
As is mentioned in section 4 the repayment moneys will be in Irish pounds.
Of course it would be in Irish pounds. But what I am asking is what exchange rate will be relevant, the exchange rate at the date of the repayment or the exchange rate when the money was borrowed?
Yes. One would buy one's pounds. If one owed $500 one would have to pay in Irish pounds the value of $500.
Depending on exchange rates that could mean that the State could be at a loss and would not have a full repayment.
There is always a loss on the foreign exchange rate.
That is not always so. There could be a profit depending on the movement of the rates.
There is always a danger of a loss.
The Minister is prepared to take it that it is the exchange rate prevalent on the date of repayment.
It will be taken as the Bill states.
But the Bill is silent; that is what I am asking about. The Bill is not silent in section 2(3) but it is silent in this case. Maybe it does not matter.
What I am saying is that on the date of repayment the amount is calculated in Irish pounds, whatever the consequences of that may be.
Question put and agreed to.
SECTION 5.
Question proposed: "That Section 5 stand part of the Bill."
Is the annual statement relating to guarantees to include particulars relating to bridging loans which could form an inherent part of a particular special financial arrangement? The Minister used the phrase in his Second Stage speech. We are about to have a special financial arrangement which is now proposed and which will cover the total cost of the ship and will incorporate a leasing contract and so on. Would it be possible to see details relating to the bridging finance, when it was incurred, the method by which it was incorporated into the guarantee if necessary, and the method of repayment?
As the section states the annual statement will cover all guarantees given on behalf of Irish Shipping Limited for bridging loans.
Can the Minister assure us that the particulars of the guarantee in the annual statement will be reasonably elaborate in terms of explanation?
There will be full particulars of the guarantee.
Question put and agreed to.
Section 6 agreed to.
Title agreed to.
Bill reported without amendment.
Question proposed: "That the Bill do now pass."
In regard to the general principles behind this, of the so-called privatisation which is referred to in the memorandum which the Minister gave us, I have no objection to such movement into the private sector to get money to ease out the Eschequer requirements. However, when a guarantee such as this is involved and the Minister says such a guarantee takes it outside the ambit of the Exchequer borrowing requirement, I suggest that he does not take it strictly outside the ambit of the public sector borrowing requirement. It is not quite frank to suggest that this will ease the Exchequer requirement. The total Exchequer liability will not be diminished by this arrangement.
I am sure the Deputy appreciates that involving the private sector in projects like this one is worth while. I am sure he realises that everything must be paid for. Nobody denies that. When money can be made available for worthwhile projects it should be availed of. That is what we are doing. I understand negotiations were going ahead during the Minister's period of office and, having been advised by the legal people to that effect, we are giving legislative statutory backing to the whole process. I should like to say how appreciative I am of the contributions which were made in the House. I regard it as important to have people who probe and try to clarify financial arrangements in such a way that the public may be satisfied that money is being provided for a very worthwhile project for a company who have served the country well as was so eloquently stated by Deputy Flanagan.
Would the Minister not agree that while it is technically correct to use the phrase "special financial arrangement" and while he indicated it is outside the Exchequer borrowing requirement, it may convey to the public some blessing on the concept of privatisation which we strenuously contested over the last two or three years? The Minister will recall that former Ministers for Finance, Deputies Colley and O'Kennedy, indicated to us that the Attorney General need have no worries and that strictures laid down by him in relation to borrowing incurred under privatisation was purely a myth being perpetuated by Opposition Deputies at the time. It was indicated that the correct approach was being followed now. There is a public sector borrowing requirement which is of major concern in relation to job creation and capital projects of this nature. It is not merely the question of the Exchequer borrowing requirement which is involved.
The Deputy has made something of a corner of this for some years and I commend him for it. He has chosen an area of specialisation which has its own usefulness. One point I made to him was that I hoped that this aspect would not cannibalise all other aspects so that he would leave out all other considerations. With regard to the reference to previous Ministers for Finance, I do not recall the instance to which he refers.
With regard to the Bill, its necessity was pointed out to us by the Attorney General and it was because of that we brought it before the House. I am grateful to the House for putting it through all stages. There were such powers already in existence with regard to CIE. We have now gone most of the way towards providing such powers for Irish Shipping and I thank the House for doing so.
Question put and agreed to.
Limerick West): This is certified a money Bill in accordance with Article 22 of the Constitution.