Dáil Éireann debate -
Tuesday, 13 Jul 1982

Vol. 337 No. 9

Fuels (Control of Supplies) Bill, 1982: Second Stage (Resumed).

Question again proposed: "That the Bill be now read a Second Time."

Minister for Industry and Energy (Mr. Reynolds)

I must, indeed, emphasise that any calculation of the diseconomies involved is only valid at the time it is made because of the volatility of conditions in the oil market. There is a reasonable expectation that, in time, the diseconomy can be reduced.

The current oil market surplus, with depressed market prices, which has caused losses even on the part of modern refineries, is beginning to diminish and already market prices have begun to rise. In these circumstances the gap between the Whitegate prices and the prices of imported refined products is reduced. Another factor which may help to reduce the diseconomy is price of the crude oil being processed at the refinery. The Irish National Petroleum Corporation will have at least three separate sources of crude oil. Two of these sources have already been arranged, namely Saudi Arabia and British North Sea Oil. At first there will be a high proportion of Saudi Arabian crude oil processed at the refinery. In the current oil market situation this crude is relatively expensive but in time the corporation will be expecting to achieve some economies in their crude oil procurement, having reasonable regard to the objective of supply security.

The proposed off-take regime will operate on the following lines. All oil importers, including undertakings which import directly for their own consumption, will be obliged to purchase a proportion of their oil product requirements from the refinery. For two major reasons an upper limit on this obligatory proportion will be set. This upper limit, roughly matching the minimum operating level of the refinery and representing about 35 per cent of the Irish market, will minimise the burden on the economy generally and on the oil companies, while any diseconomy exists. Secondly, in discussions with representatives of the EEC on the compatability of the proposed regime with the Treaty of Rome, it was suggested that such a limit was desirable as indicative of the minimum strategic national requirements in an acute emergency situation. There may be scope for operating the refinery with improved economy at higher levels of throughput without adversely impinging on the mandatory offtake arrangements and this will be fully explored by the INPC.

The INPC are currently engaged in discussions with the oil industry on the methodology of implementing the off-take arrangements. In general, it is intended that the amounts of Whitegate oil products to be taken for each quarter will be based upon data provided by the companies in respect of their sales or requirements in the preceding 12 months. I have emphasised to the INPC that the arrangements should be agreed as far as possible and should be as flexible as possible, consistent with an equitable operation of the scheme. It should be possible to agree arrangements to cover such situations as where the allocated quantity of a product might be unrepresentative of the importers' anticipated requirements or where the lifting of an entire allocation of any product in a particular quarter might create special difficulties.

Apart from the trading companies, there are certain major oil users who import their requirements directly and in bulk, mainly supplies of heavy fuel oil. There may be about a dozen of these large oil consumers and it would be necessary to make appropriate arrangements for these within the general scheme. Because of the effects of oil prices on the costs and competitiveness of Irish industry, the price to be charged for the Whitegate proportion of their heavy fuel oil requirements will be an important consideration. Although final prices will not be known until the arrangements are further advanced, I will be concerned to ensure that the heavy fuel oil price will be pitched at a level which would not give rise to significant difficulties for Irish industry, both those who have direct import facilities and those supplied through the national distribution network.

I should now like to deal with the major provisions in the text of the Bill. As I have indicated, following consultations with the Attorney General and with the EC Commission it emerged that a mandatory purchase obligation on oil importers could be consistent with the provisions of the Treaty of Rome on the grounds that the measure was essential in the interests of the common good and public security and in pursuance of public policy. The Attorney General has advised that the Fuels (Control of Supplies) Act, 1971, is an appropriate instrument on which to base the regime, subject to certain amendments of that Act. This Bill incorporates these amendments.

The 1971 Act enables the Minister for Industry and Energy to control the supply and distribution of fuels whenever the Government are of the opinion and declare that the exigencies of the common good so require. The legal opinion is that the words "supply and distribution" must be read together. This description therefore is unsuitable for the off-take regime as it is not proposed to control the actual distribution of oil. The Bill therefore provides for the amendment of that description where it appears in the Act to read "acquisition, supply, distribution or marketing". The word "acquisition" is inserted in order to make certain that the purchase obligation is comprehended in the Minister's powers. The word "marketing" is also inserted since it is a relevant aspect of the operations involved in getting Whitegate products into distribution.

With the inclusion of these amendments the Minister will, while a Government order under section 2 is in force, be in a position to make an order under section 3 applying the Whitegate purchase obligation to oil importers. Such a Government order, made in 1979, has been kept in force by continuance orders in view of the instability of the oil market since then.

Included in the amendment of section 2 of the Act is an extension of the maximum periods of operation of Government orders and of continuance orders from six to twelve months in each case. A period of six months is considered inadequate for oil supply planning, particularly in relation to the disposal of products from Whitegate refinery. The Bill also includes new provisions which may be of assistance in administering the off-take arrangements, and, of course, the enable the Minister to require a person to furnish relevant information to him in order to enable him to implement an order. There is also provision for the authorisation of officers to inspect premises, obtain information, examine and take copies of documents and so on. The other provisions of the Bill are the updating of the construction of the penalty provisions and an amendment of the definition of petroleum oils in order to ensure that stocks of oil in retailers' premises are included. There has been a legal doubt as to whether such stocks are covered in the existing definition.

I commend this Bill to the House. I emphasise again that it is an essential consequence of the decision to retain refining operations at Whitegate. I believe that Deputies on all sides will concur in the view of successive Governments that every prudent step must be taken to maintain and improve our ability to safeguard the public and the economy against the worst effects of an acute oil supply emergency.

Mr. P. Barry

Although we do not intend to oppose the Bill, it is not with any great enthusiasm that we welcome it because anyone who has studied the effects of the purchase of this refinery could not welcome the legislation with enthusiasm.

In my time in Government the decision to purchase Whitegate was one of the most agonising and least clear actions that had to be taken. From a commercial point of view I do not believe anybody would have made the investment the State had to make. What tipped the balance in favour of the purchase was the strategic objective, because the size of the refinery, the nature of its plant and equipment and the position of refining capacity all over Europe as well as the ownership of the refinery all were factors that would not have encouraged anyone in the commercial sector to purchase it. What brought the balance above the 50-50 point was the strategic objective.

The State has now undertaken to purchase the refinery, and its management in future will be the Irish National Petroleum Corporation which were set up in 1975. The State is taking into ownership a refinery containing costly equipment without any legislation to back up the acquisition of the refinery. But worse than that, it will be operated by a company which has no statutory backing. It is two steps removed from parliamentary, and therefore taxpayer, control. We hope, of course, that the necessary statutory provisions will soon be enacted. In reply to a question some time ago, the Minister assured me that there would be legislation to supervise the control of INPC. The sum of £100 million to be invested is a huge amount but there is no machinery yet under which the INPC can be brought before the House. I hope such legislation will be before us during the October to Christmas session.

I was disturbed by the provision which brings in a mechanism devised to ensure that the output of Whitegate will be purchased and used within this country. The Fuel Bill of 1971 was introduced to meet an emergency situation, though not a war situation. That legislation was used twice for such situations. There were the tanker drivers' strike and the 1973 oil crisis. The Minister has told us he has advice from the Attorney General that this is the appropriate piece of legislation. I am sure the new legislation will be different from the 1971 Act which this Act proposes to amend, but the problem attached to the 1971 Act is that it did not insist on controlling output.

I have doubts about the appropriateness of this legislation to insist on the purchase of 35 per cent of the output from the 1982 Whitegate refinery. If, as the Minister has indicated, he proposes to start the refinery next August, some legislation had to be devised to enable him to sell the product of the refinery immediately production began. I was pleased to see that the petrol to be produced at Whitegate will conform to EEC standards, because we have been neglecting this — we are the only country in the EEC which has 0.64 milligrammes of lead, and that is unacceptable in any other European country, the content being 0.40 millilitres. Even that will be unacceptable in the near future because in this and other countries there is much greater awareness of the health hazards from lead poisoning, particularly for young children. Petrol has been bearing the brunt of the blame but as we all know there are other sources of lead poisoning and it is only fair that that should be emphasised.

The CII have many reservations about the position of industry in regard to the purchase of the refinery and the ability of the refinery to stand on its own legs. There is concern that the produce will be sold at such a price that it will recoup Government investment in the refinery. We must all share that concern. Already industry here finds itself labouring under competitive constraints that are costing us exports and will cost us jobs. Indeed our entire competitive position can be and should be looked at from the point of view of how competitively we can produce here, because we will not maintain the jobs we have, never mind create new jobs, if we do not ensure that the goods we produce are produced at competitive prices. One of the factors that has been making the task of industry more difficult in the last few years has been the cost of the energy inputs for industry. This has been particularly so since the 1980 budget that added so savagely to the tax on fuel oils.

The Minister says that the cost effects of the purchase of the refinery will be about 1p to 2p per gallon and is not willing to say at this stage how this will be divided across the range of products that will be produced at Whitegate. I am not sure whether he means that this cost would only affect the 35 per cent which the present users of petroleum products will now be required to take from Whitegate or that it will affect everything across the entire market and that everything will be put up by 1p or 2p. It is probably the only practical thing to do, because the identification of the products coming out of Whitegate might be quite difficult unless it is the intention not to preserve Whitegate at its present breakdown but to move it away from its over-production of heavy fuel oil and move it up the market into the lighter oils, petroleums and aviation fuels that are more profitable for the refinery and more acceptable to the market because they command higher prices. But it will be breaking a long tradition and will cause tremendous head-scratching and telephone call-making to various Ministers and people of influence. There is one very obvious customer on the back door of the Whitegate oil refinery for heavy crude oil. That is the ESB, who have previously resisted any attempts made to have them purchase the heavy fuel oil from Whitegate because they, reasonably enough, say that in the interests of the consumers of their product they must be free to buy abroad in the cheapest market and the location of that cheap market varies almost daily and certainly on a regular basis throughout the year and they take advantage of the cheapest areas to buy in the heavy crude oil. They will naturally be resentful of the order which the Minister will have to give them now that they must purchase 35 per cent of their heavy fuel oil from the Whitegate oil refinery. As against that it could perhaps be sold to them at a very much cheaper price because of the location of their generating plant, which is only about a quarter of a mile from the refinery so that it could be piped from the refinery into the station. As the Minister probably already knows there will be an outcry from the ESB who will see this as a further encroachment on their freedom to purchase what they like, where they like, at the best possible price. In fairness to them, I must say they have been extremely successful for over 50 years now in getting oil at the cheapest possible price even in the days of the rocketing of oil prices in 1973-74 when nobody was quite sure what was happening. The ESB's record at that time was shown to have been more successful than many of their competitors on the continent and in other parts of the world in ensuring supplies at prices that were exhorbitant but were less exorbitant, if there is such an expression, than many of the other electricity generating stations based on oil and heavy crude oil throughout Europe.

The benefits of the purchase of this refinery for the people of this island are very difficult to quantify. The life of this refinery may be quite short; it may be only as much as five, six, seven or, at a maximum, eight years. To cover us for an eventuality that may never arise we are loading our economy with a price differential over what would be possible if we were to operate, as we do in so many other spheres, a completely open economy in the case of petroleum products. I hope the wisdom of the purchase of this refinery will never be proven, because that would mean that the economies of the world have become so influenced by decisions made in the oil-producing countries, of the Middle East particularly, that they will affect supply and affect the supply to the western world. We have all grown up here and in Europe in an era of cheap energy from the Middle East, fuelling our own economies and building up until we came to the shock of the 1973 oil crisis. It is only since then that we have been appreciating how overly dependent we are on the Middle East. But if there is turmoil there, if the world comes out of recession and moves back into growth again, if the demand for oil products goes up and if the OPEC countries have a more successful meeting in two years' time than they had this week, we may have done the right thing in purchasing that refinery. But it is a very fine line and I was not happy to be part of the decision making process for this. As I said when I started off, it could not be justified as a commercial investment. The only thing that brings it up to even the 50/50 level of decision making to purchase is the possible strategic importance of it in the event of some catastrophe arising in future years. I hope, in that sense, that we will never be proven to have been right in purchasing this refinery.

Mr. B. Desmond

The harbour of my native county is developing an enormous propensity to rearing white elephants. Perhaps this elephant will be about the same size in length and in cost of the Exchequer as NET and Irish Steel. The three of them rank in about that order. In regard to the NET operation we find ourselves today talking in terms of £180 million; in regard to Irish Steel it is £80 million and, were it not for the fact that we gave £25 million a few weeks ago, it would be £105 million. We are talking now in terms of an oil refinery with annual operational losses of up to £20 million and the country ultimately being left with a piece of totally obsolete technology with about five or six years to run even if it were opened tomorrow morning, producing petrol which is contrary to EEC regulations because of its lead content and which would require, if we were to be serious about having a modern refinery in the harbour, an expenditure of about £60 million or £70 million and which, in terms of replacement, would cost us not less than £150 million. That is why I use the term "white elephant". I propose to examine that white elephant tomorrow night from the tail to the tusks and I think that we will find in it a particular lumbering giant, admittedly by virtue of a decision of the previous Government but concurred in by the present Government, which is going to be a burden around the Exchequer's neck.

Debate adjourned.