It is no exaggeration to say that the past number of years have not been happy times for Irish Steel Holdings. It is equally true to say that the past eight years especially have not been happy for the steel industry in Europe and internationally.
In relation to the company, the subject matter of the Bill before us, they have gone through the trauma of modernisation and change from an obsolescent plant to one that is now among the most modern of its type in Europe and throughout the world. In 1974 the company, together with their competitors, had to endure the trauma of the revolution in oil prices and the effect that had on steel production and steel markets throughout the world. With other manufacturers in Europe the company have experienced the increasing aggression and competitiveness of steel manufactured by Third World countries who have the benefit of cheap labour and who have been making inroads into the European and other markets.
It was for such reasons that the decision was made in early 1977 to initiate this programme of modernisation for Irish Steel Holdings. It was interesting to read the statement in the speech of the Minister today that the final costs of restructuring the plant and providing adequate working capital have resulted in a figure which is more than 100 per cent in excess of the original estimate presented to the Government at that time. It is fair to say that it is difficult to keep down costs in times of high inflation in many countries — an inflation that apparently has been allowed to become endemic in our economy — but nonetheless it is disturbing that estimates of such a substantial nature could be so out of line as not to have sufficiently estimated the potential factor of continuing inflation and of other costs which might influence the eventual out-turn of the cost of a plant of this nature.
In relation to very many of the heavy investments — not just Irish Steel — which the State have undertaken and are being asked to undertake, sufficient attention has not been paid to the production of realistic estimates of high capital costings, of restructuring and of State investment in both State companies and participation in the equity of private companies. The history of the estimates provided to Governments in this regard is a sorry one and, to some extent, reflects upon us all. Public representatives and public servants must examine their collective consciences as to whether sufficient attention has been given to how realistic estimates of this nature are at their time of presentation, and how that presentation influences the decision of Governments as to the extent of their participation and commitment to any particular venture.
The losses in Irish Steel have been steadily mounting each year since 1974, initially because of the effects of the oil revolution and the increasing obsolescence of the type of plant which has been operated. In more recent years it was due to the disruption in production and sales because of the installation of the new plant, the gearing up of that plant and the attempts which are now being made to break into new markets. All these factors have resulted in a total borrowing by Irish Steel of some £84 million or £85 million. That is indeed a daunting figure when one looks at the existing share capital of the company and the Government's participation in it.
It is interesting to look at the loss figures produced by Irish Steel for each of the last three years for which accounts have been published. The losses to June 1979 amounted to £2.926 million. A year later they were £6.614 million and, in the last year for which figures are available, the losses amounted to £12.946 million. While I think the House would accept that there were exceptional reasons for the losses in the year up to June 1981 because of the finalisation of the commissioning and installation of the new plant, they are nonetheless daunting figures. In many respects one of the few heartening things that one could take from the production of the annual report and the chairman's statement for Irish Steel, is that the report itself was published very efficiently and expeditiously in the context of the financial year in question, a trait that is not common among a number of the companies that enjoy heavy investment by the taxpayer.
I was a little taken aback that the Minister, while explaining that the old plant had a production capacity of 150,000 tonnes per annum up to 1978, did not outline what would be the minimum amount that would be required to be produced by the new plant in order to make it viable. There are two separate figures to be given: the total production capacity of the new plant operating at peak and the other, the more realistic one, is the figure which would be required to be produced in order to reach any level of viability on the new mini mill, which is of the modern electric furnace type. There seems to be a divergence of opinion between the Minister of State at the Department of Finance, the Minister for Industry and Energy and the chairman as to the range of products that can be produced in the new plant. The Minister and his colleague have stated that the plant is capable of producing 84 products when it is operating at full range. The chairman in his statement claimed that the plant can produce a range of over 100 products. It is a small point but the Minister responsible and the chairman ought to be ad idem as to what can be produced.
As the Minister has said, the total capital cost of the plant and preproduction expenses now amount to £64 million. There is a requirement of an additional £16 million for extra working capital. I was glad to see those figures presented today by the Minister separately. There was to some extent an attempt in the moving of the Supplementary Estimate to combine the figures. The point was fairly made at that time by Deputy Eddie Collins that the addition of working capital ought not to be included in the initial capital cost of setting up and gearing up plants.
In relation to the last year for which we have figures there was, as the chairman said, a particularly strange situation where the firm had minimum production, maximum costs and negligible sales. The sales involved existing stock and the company made no finished deals during the last financial year. The upshot was that in October 1980, 213 employees were laid off. It was hoped this would be of a temporary nature and in July last year 112 workers were re-employed. Subsequently a scheme has been introduced to persuade people into early retirement.
We should have discussed at greater length the situation regarding the total workforce in the firm at present. The Minister referred to the fact that it may be necessary for Irish Steel to put the total workforce on a three-day week. I am not clear whether the 500 workers he refers to are the total workforce of the firm or the core of that force. From the point of view of the substantial numbers employed by Irish Steel it should be made clear what the future earning potential of that workforce is. It has been suggested that at present, even with the limited amount of production in Irish Steel, production quantities exceed the amount of sales and to some degree stockpiling is taking place. If that is the case when we are in the initial period of production and the prospect for the workforce is a three-day week, it is a very serious matter and should be discussed by this House in greater detail than has been outlined by the Minister.
The Minister announced that there is to be a study of the future viability of the firm and, while there was an indication given of that previously, he has today indicated that that study will be set up not just by our Government but by the European Steel and Coal Commission also.
I realise from the Minister's remarks that there is to be further clarification in regard to the amount of authorised borrowing that the EEC Commission may permit. This is an enabling Bill to allow borrowing to be made by the company on the State, with the proviso that this must be agreed to by the European Commission. I would like some indication to be given to the House of how long it is expected that that study will take. We have a year ago, in a Supplementary Estimate a few months ago, and today, seen further and fairly massive injections of State funds into Irish Steel. It is important from the point of view of all concerned, the taxpayer, this House which has a responsibility to that taxpayer, but which has equally a responsibility to the employees of Irish Steel Holdings Ltd., that there be some indication given of the Government's intention and commitment towards the future of Irish Steel Holdings Ltd., not just for the remainder of this year — as would appear to have been indicated by the Minister now — but during what obviously will be the considerably difficult period of endeavouring to break into new markets with these new products and to regain Irish Steel Holdings traditional share of the Irish market. I fear there will be perhaps less than full enthusiasm displayed, or that might be expected to be displayed, from the sales and marketing personnel, apart from any other employees, if they find themselves in a situation in which there is a very large question mark hanging over the Government's future attitude to Irish Steel Holdings. Whilst a study may be deemed inevitable by the EEC there is nonetheless an urgency attaching to this from the point of view of the employees of the company, their whole approach to the operations of Irish Steel Holdings and their confidence in the knowledge of what is Government policy in relation to their company.
It is now generally accepted that the sort of mini-mill provided in Cork is the most modern of its kind in Europe, indeed is one of the only type of steel mill likely to make a profit in the foreseeable future. It is heartening that at least in relation to the type of plant, and more especially the type of product capable of manufacture in Cork, there is great potential if and when there is an upturn in world markets and return to a more realistic pricing structure. However, the worry will have to be in regard to the extremely high capital costs incurred in the installation of this plant, accumulated losses over that period of installation and the servicing of the debt that has developed during that period.
The strategy outlined by Irish Steel Holdings is that over 70 per cent of the products they will manufacture will be exported. That laudable aim must also be described as a brave aim in the context of an already much overcrowded and depressed world market. It is sobering to reflect that at present over-capacity amongst European steel mills amounts to 30 million tonnes per annum. Apart from that over-capacity within the Community there has been also the much more aggressive marketing policy adopted by Japanese, Korean, Brazilian and other manufacturers. That strategy on the part of Irish Steel Holdings must involve a most aggressive marketing policy combined with a stringent cost control in relation to production costs. Those two factors alone will not suffice. Unless there continues to be in an increasing way an adequate EEC pricing policy and also an adequate EEC policy in relation to production control and the policing of quotas then in the medium term there is no real hope of a return to a viable European steel industry. Whilst one must welcome the changes introduced in the management and marketing policies of Irish Steel Holdings and in their very real commitment, as illustrated in their annual report, to adopt not only an aggressive marketing policy but also one of having stringent production cost control, those alone — good housekeeping in relation to the Irish producer — will not suffice as long as there is a depressed European and world market with artificially low prices and with the extraordinary over-production capacity existing amongst the major steel mills throughout Europe.
Therefore, it behoves the Government, not alone in regard to any study they may commission as to the viability of Irish Steel Holdings but also in relation to their approach and representations to the EEC Commission, to ensure that the best interests of Irish Steel Holdings and their future marketing policies are pursued aggressively, and also that their interests in relation to ensuring production quotas are extended. I understand it had been hoped that steel production quotas would be extended until the end of 1983 but that as a result of a decision taken at the beginning of May production quotas will be extended for a further 12 months only until the middle of next year. We are already talking about a situation in which apparently it will take Irish Steel Holdings four to five years to bring their full range of products into production progressively and to market them. We are also talking about a situation in which the introduction of production controls in Europe has helped but marginally only within the market at present. Unless there can be a decision taken over a realistically and reasonably long period to insist on those quotas for production amongst the major steel manufacturers of Europe, together with a progressive upgrading of pricing policy, the prospect for Irish Steel Holdings of being able to branch out into the other range of products available to them will be seriously diminished.
For that reason it is very important that the attitude of Irish Steel Holdings be supported by the Irish Government and the Minister responsible in their dealings with the European Economic Commission. In that regard, a number of factors arise. Whilst Irish Steel Holdings Ltd. were out of production — presumably because of the depressed state of the market — there was quite an active campaign engaged in by those who will now be competitors of Irish Steel Holdings in an effort to gain that section of the market traditionally enjoyed by Irish Steel Holdings. Such things as specially extended credit terms were extended to customers of Irish Steel Holdings on the Irish market with the result that one of the first tasks now facing the company is to recover for themselves their traditional share of the Irish market. In that regard the importation of 11,000 tonnes of Argentinian reinforcing bars referred to by the Minister is of considerable worry. While the Minister has referred to this matter now and said that he has supported the complaint lodged by Irish Steel Holdings Ltd., it is incumbent on him to explain to the House exactly how this Argentinian steel — steel coming from outside the Community — could find its way onto and be dumped on the Irish market in such a manner that the only action that could be taken by an Irish Minister was to complain retrospectively that it had arrived and was on sale.
When we are talking about a world situation of over-production and of manufacturers outside the Community surely there could have been devised a safeguard whereby it would have been impossible for that non-EEC steel to have found its way onto the Irish market. It is a little too late to talk about a State company in the difficult position in which Irish Steel Holdings now find themselves, facing heavy competition from their competitors, to discover also steel produced from outside the Community arriving on the Irish market at about the same time as the only Irish steel mill owned by the State is endeavouring to recover their share of that market. Whilst the Minister's support of Irish Steel Holdings complaint is to be welcomed I should prefer to hear from him the steps he intends taking to ensure that there cannot be a repetition of such an occurrence.
I accept that Governments generally are anxious to see their own steel industry supported. Perhaps the Minister is not the only one who has experienced problems with Argentinian steel merchants of one sort or another in recent times. The Minister should have told us how he intends to tackle this or similar problems in the future. He should also have referred to the controls he has taken or would take to prohibit the exportation of Irish scrap to countries outside the EEC. The situation generally about licences in relation to the importation of scrap from non-EEC countries should be attended to. We should be told if the Minister has power to prohibit the exportation of scrap to non-EEC countries.
The new plant at Cork is well placed to benefit from any increase in world or EEC markets. Our production represents only .2 per cent of the total steel production capacity of the EEC. The EEC capacity represents only 18 per cent of the total world capacity as opposed to 29 per cent manufactured in eastern Europe, 16 per cent in the USA and 25 per cent in Asia. The production capacity of Irish Steel in world context is, therefore, miniscule. In relation to the production quotas I referred to which the Commission introduced, have temporarily extended and, we hope, will extend further, it is as well to make the point that while Irish Steel are manufacturing at the moment far less than their total capacity, because the new plant is only going into commission, it would be wrong for the Government to agree to a quota being assigned to Irish Steel based on the production capacity of the old plant because that capacity is far less than the capacity of the new mill. That is why I inquired about the viable level of the new plant. In any negotiations in regard to Irish quotas it is necessary that those quotas are based on the viable level of the new plant rather than on the traditional output of the old plant which ceased operation in 1978-79.
I accept that in the last year, through the activities of the Commission, there has been an increase of 12 to 14 per cent in the price of steel in Europe although during 1980 the EEC prices were 15 to 20 per cent lower than the price in the USA. It should also be said, in relation to pricing and production quota controls, that it would clearly favour the type of product and the range of product manufactured by Irish Steel if the quotas in relation to dealers, which apparently at present are set in relation to dealers who handle over 12,000 tonnes per annum, were lowered and applied to dealers handling smaller amounts of steel. I understand that it would be in the interests of Irish Steel Holdings Limited if the regulations applied to dealers handling steel in excess of 3,000 tonnes per annum rather than the existing quotas of 12,000 tonnes because of the type of product Irish Steel are capable of producing. The Minister should investigate the possibility of having those quotas in relation to dealers extended to the smaller type dealers as well.
The chairman's report refers to the fact that the 1981 energy costs for Irish Steel were the highest energy costs incurred by any steel mill in Europe. The Minister should explain to what extent Irish Steel are at present using natural gas produced in Cork and to what extent the plant might be capable of using further supplies of that natural gas. I accept that before we endeavour to solve the energy costs problem in relation to Irish Steel, we should establish a national pricing policy for energy sources. Perhaps, in regard to assessing the capabilities of large State companies like Irish Steel to use the natural energy sources produced here, we should as well assess the pricing policy in relation to the sale of that gas or other native energy sources to such production companies. We should receive clarification of the extent to which Irish Steel could rely on natural gas for their total production from the point of view of energy needs.
It is sobering to reflect on the fact that a company operating in such a competitive and depressed market should have to say that they have found themselves with higher energy costs than any of their competitors in Europe. This factor will have to be taken into account and will have to reflect itself in the pricing structure of Irish Steel products. I would like the Minister to tell us when the mill will be capable of being in full production. There was a suggestion in the chairman's statement that the mill would not reach its optimum output until the end of the fourth year after start up. In view of the serious situation obtaining in relation to sales and the possible stockpiling, which I hope the Minister will deal with in his reply, and the employment prospects of the existing employees, we should be given an indication if it is intended to progressively carry through the implementation of the introduction of the greater range of products in each of the years over the four-year period to bring Irish Steel to a situation where the company will be producing the full range of their products within four years. If that is not now the intention we should be told the range of products it is expected will be produced by Irish Steel in each of the next few years.
I understand there has been IDA involvement in the financing of the new plant. We should be told if the IDA involvement in financial terms has been included as part of the assessment of the State's financial contribution towards the modernisation costs of Irish Steel or if the IDA involvement is being treated separately and has not been shown in the figures we have been given.
Deputy Collins raised two questions on the Supplementary Estimate which might be dealt with by the Minister when he is replying to the Second Stage. The social aspects of steel restructuring are being financed by direct contributions within the EEC. Deputy Collins said that any such financing should be funded from the social fund rather than by direct contributions from the member states. He also raised a point in relation to Article 56 of the European Coal and Steel Treaty about subsidised loans for industries which re-employ steel workers. He made the point that if those loans were to be used extensively in other countries to attract employees away from non-viable steel mills employing large numbers, such loans at very attractive rates could operate to the detriment of the IDA's general policy of attracting industry to this country. As a progression on that, I would ask whether any investigation has been carried out or any thought been given to the use of such loans by this country if it is found necessary for more employees of Irish Steel Holdings to be placed on short-time working. Has there been any investigation of the possibility of the utilisation of loans of this nature to attract or stimulate other industries in the Cork area towards re-employing these highly skilled workers by using the subsidised loans available from Europe?
The annual report of Irish Steel for the year ended 30 June 1981 sums up the position in regard to that company better than the Minister or I could do. On page 9 of this report it is stated:
We have already obtained sufficient evidence from our experience during commissioning to forecast with confidence that the plant will produce goods competitively if it is operated within the constraints of the planned costs attached to a plant of this nature. If costs, whether remuneration or interest charges or overheads, are allowed to get out of hand to the extent that the economies of this very modern plant are distorted, our customers, traditional and new, will have no choice but to turn to alternative sources of supply.
The company is obliged to operate within Government policy as to pay in the public sector, an obligation which is in the national interest as well as that of the company.
The company is delicately balanced, very heavily burdened with debt, seeking substantial equity investment from the State at a time of severe economic constraints. We are seeking new markets and attempting to recover those which we had to opt out of substantially while our new plant was being prepared for, installed and commissioned. The present market situation is one of unprecedented difficulty with capacity far exceeding demand. The result is intense competitiveness in the market place.
We cannot sell what is too dear to a potential customer. We cannot stockpile in the hope of rising prices because the cost of working capital would be prohibitive. We look with confidence to all who work in the company to recognise the difficult and special circumstances surrounding the emergence of this virtually new company and realistically to abate their personal expectations from the company until it is established and once again in sight of profits.
That is not exactly the most optimistic of reports but it is a very realistic assessment on the part of the chairman of this company, which has undergone the trauma of such a major modernisation programme and loss of their existing markets, as well as conversion of their marketing policy and the production of a range of products in new areas. These are the daunting tasks facing Irish Steel. They are the same sort of problems which face a number of other State companies engaged in the competition of European and world markets. This company are, however, facing a situation of enormous over-production together with a very depressed market which makes trading for profit an extremely difficult task in Europe, whatever about parts of the Third World.
The potential exists within the new plant in Cork and the expertise exists within the work force to produce competitively and contain production costs. The desire exists there to market aggressively and endeavour to re-establish their position on the Irish market, as well as breaking into new export markets. I do not believe that any of those things will lead to a guaranteed future for Irish Steel without the support of the Government and the European Commission, both in relation to pricing policy for steel in Europe and the control of steel production, with the progressive closing down of obsolescent and older mills throughout Europe. There must be strong support by the Government towards the continuation of the control of production quotas and the restructuring of pricing policy by the Commission. These matters must be aggressively pursued by the Government, as must policy in relation to licensing of the importation of steel from non-EEC countries, the prohibition of scrap exportation from this country to non-EEC countries and a definite and firm enunciation of policy by the Minister as to the role the Government see for Irish Steel in the future and an indication of the period during which the Government accept that it will not be possible for Irish Steel to show trading profits. What targets have the Government set for the company and in what year do they expect that Irish Steel might be in a position to reach a break-even point or begin to make a return on the heavy level of State investment?
We are at the crossroads for this company and we need a series of correct decisions by the management of the company and by the Government in regard to our economy, as well as supportive and corrective action by the EEC to ensure that Irish Steel can fight through and attain the share of the market which will enable the mill to operate viably and enable their employees to look with confidence to a continued career. All those things are possible with the combined good will and expertise of all involved. There must be a definite decision by the Government as to what is required from Irish Steel Holdings and as to the supportive action they will take with the European Commission to ensure that market conditions make it possible for the company to operate viably and increase their range of products.
I welcome the introduction of the Bill and ask the Minister when replying to deal with the points I have made and to give not only to the House but to Irish Steel an indication of the time scale of the investigation which he has announced.