For experienced politicians to try to create a situation in the outside world that is different is fooling themselves and I do not think they are easily fooled. That is the reality and the Deputies know that as well as I do. If the situation needs to be changed there is a way of changing it. However, I am sure if it were changed Members opposite would be the first to point the finger at any Minister and complain about political interference with regard to giving grants, that is not the way we do our business and I am sure it is not the way Deputies opposite would want to do business.
The IDA were established by the Oireachtas as an autonomous agency and have functioned as such an agency with the agreement of the Houses of the Oireachtas for over 30 years. Acceptance of the motion before the House would undermine the functions of the IDA which have been carefully entrusted to them and would lead to the undermining of the confidence and trust placed in the authority.
A Private Members' motion is not the vehicle by which a major change in industrial development strategy is brought about. As the House is aware, a major review of industrial policy is underway at present and I am committed to the publication later this year of a White Paper on the subject of industrial development strategies to be pursued to the end of the decade. This publication will present the appropriate opportunity for the house to express its view on present policies, on any shortcomings which it feels exist and to put forward proposals for improvement.
It is in such a context that industrial policy generally should be discussed, not in the context of a Private Members' motion relating to one firm only. I might mention here that the competence and ability of the IDA are the envy of most other countries and they have been recognised as the most successful and professional development authority in the world. Acceptance of the motion by the House, undermining the authority's autonomy, would at least dent their image if not damage it irreparably.
The Fieldcrest towelling operation in Kilkenny has been the subject of much public discussion and indeed was discussed at length here not only last night but on 9 June. Given the importance of the issue and the amount of attention which the subject has received, I welcome this opportunity of setting the record straight in relation to this project. I think it important that I should outline the history of the project up to the time of its closure, before dealing with the present situation.
The first proposal which came before the Government in July 1975 was for the establishment of a towel manufacturing plant in Kilkenny with Fieldcrest the only promoter of the project. That package which was approved by the Government involved direct investment by Fieldcrest and grant assistance from the IDA. Following this approval, the board of Fieldcrest reviewed the project and requested a revision of some of the elements of the project in the light of the continuing economic markets, the rate of inflation in cial markets, the rate of inflation in Ireland and de facto sterling devaluation vis à vis the US dollar.
Following subsequent negotiations between the IDA and the promoters, the Government approved a revised package in January 1976. In August 1976 Fieldcrest were of the view that the project could not proceed without a joint venture partner. Fieldcrest and the IDA then conducted a search for a suitable partner because it was clear that failure to find such a partner would lead to the project having to be postponed indefinitely. P. J. Carroll & Company Limited and the Bank of Ireland decided, subject to the approval by the Government of a revised grant package, to participate with Fieldcrest in the Kilkenny venture. This decision was taken after detailed technical, financial and marketing studies, commissioned by the Irish partners, had confirmed previous research by Fieldcrest that the project was a viable one. Thus in May 1977 the Government approved a new package now involving Fieldcrest, the Bank of Ireland and Carrolls as promoters. The total investment in the Fieldcrest project was £25 million by the bankers as loans, £16 million approximately in equity from the promoters and £11 million by the State through the IDA. The State thus contributed about 20 per cent of the total investment. These are the actual figures which speak for themselves. For Deputies to contend that the promoters' contribution was negligible is clearly not supported by the facts. It is a matter for the promoters when putting a product to the IDA Authority to decide between themselves in what way the shareholdings are to be distributed. That is a decision for the promoters when they are making any proposition and it is not unusual in this or any other case. I think it is useful here to remind ourselves what the intentions of the promoters were. The intention was to establish in Kilkenny a modern facility capable of producing high quality towels which would be sold on the European market. The success of the project would depend on a number of things being right.
The product would have to be of an acceptable standard, output would have to be high enough to justify the very large overhead cost, the price on the European market would have to be both sufficiently competitive to make the prospect of competing with existing producers a realistic one and, at the same time, be sufficiently high to cover the cost of production.
From the time production started there was a number of problems in the Kilkenny operation such as quality control. This in itself is not unusual when a new plant comes onstream. Of more importance was the unexpected and continuing failure to penetrate the European market to the extent necessary to make the Kilkenny operation viable. Fieldcrest's considerable experience and success in the United States market did not translate successfully to the European market. The net result of this was that the company incurred losses of £10 million to September, 1981, losses which now amount to about £14 million. In fact, in the year ended 30 September 1981, they incurred losses of some £6 million on sales of £10 million. These are not my figures, they are audited figures which anyone can inspect. Sales on the European market were indeed being achieved but not to the extent projected originally by the promoters. Moreover, the losses on these sales were quite dramatic. These losses which culminated in the closure of the plant on 11 June 1982 have been attributed to the severe downturn in world markets but there is also evidence that the company's management and marketing organisation was deficient.
There is not doubt that the setting up of a marketing organisation based in London, reporting directly to the United States and not to the manufacturing base in Kilkenny, was a serious deficiency and did not enable the company to penetrate the European market to the extent necessary to make the operation viable. This organisational set-up was a contributory factor in the ultimate collapse of Fieldcrest.
The problems which faced the project were recognised and faced by the promoters. In the course of 1981, consultants were appointed whose recommendations in their preliminary report were, in essence, that a new marketing strategy should be adopted and a comprehensive financial restructuring be undertaken. The restructuring package, which involved substantial additional State assistance together with further contributions from the promoters, was approved by the then Government in December 1981. This financial package was structured to provide that: The Irish partners could ensure that the company strategy and management were geared to the demands of the European market; the restructuring package was based on the assumption that, with the right management and marketing, the company would have been able to achieve the requisite level of sales and make the restructuring pay off; the three partners would contribute in approximate proportion to their present shareholding; the Irish partners, as a result of the timing of their contribution, would bear a higher proportion of the business risk, and would be in effective control of the company; and funds would be injected annually over a three-year period but the parties would be contractually committed to make each investment at a specified date provided previously agreed performance targets were achieved by the company.
At the time of approval of the further financial assistance for the company which as I said was in December 1981 and which I repeat was based on a preliminary report, it was projected that the proposals then put forward would establish the project on a sound financial basis. However, and I would like the House to understand very clearly the following, that particularly because of the market situation, it was recognised by the then Government that the future prospects for the company had still to be categorised as high risk. That background to the Government decision must not be forgotten. Nevertheless, it was confidently expected that all partners in the company would co-operate in the implementation of the proposals. Unfortunately the consultants' final report which came to hand in early February 1982 did not, as expected, confirm the market forecasts and projection as outlined in the preliminary report. This final report, the continuing and deepening of the recession allied to the company's losses caused the American partners, Fieldcrest, to lose confidence in the turn around of the company and they decided to withdraw from the project because the company was insolvent. This culminated in the appointment of a receiver to the company of 9 March 1982, on the day I took office.
