I move: "That the Bill be now read a Second Time."
The main purpose of the Bill is to extend from £15 million to £45 million the limit on the amount of borrowings by Irish Shipping Limited which may be guaranteed by the Minister for Finance. The enactment of this Bill is necessary in order to make provision for the probable financial needs of Irish Shipping Limited over the next two years. The opportunity is also being taken to extend to Irish Shipping Limited certain statutory controls relating to remuneration, allowances for expenses and superannuation. As Deputies are aware, Irish Shipping Limited was originally established in March 1941 to ensure the availability of vital supplies during the Second World War. In addition to its deep sea shipping operations, it has since diversified into other areas including insurance, car ferry services, property development, stevedoring, ship management services and other activities. These ancillary activities over the years have provided the company with a profitable cushion against losses incurred periodically in the very volatile deep sea shipping business.
Irish Shipping Group had enjoyed 15 consecutive years of profit to 31 March 1982 but in the following year, 1982/83, incurred net losses of £14 million. Losses on the deep sea sector, which is the company's principal sphere of activity, amounted to £20.1 million, offset to the extent of £6.1 million by profits on the sale of ships and from ancillary activities. This compares with a profit of £3.3 million in the previous year. Further substantial losses of the order of £22 million are estimated in respect of the financial year ended 31 March 1984.
Irish Shipping Limited is, therefore, in a very critical financial position, due primarily to the collapse of the world deep sea freight market. The tramp shipping market has always been subject to cyclical slumps. Following the world oil crisis of 1973, uneconomic freight rates were a feature of the years 1975 to 1977. Rates improved in 1978 and this trend continued through to January 1981. Rates commenced to decline in February 1981 and later in the year the market disintegrated completely. By December 1982 average rates for a "handisize" vessel of 27,000 tons had fallen from $8/9,000 per day at the peak to about $3,700 a day and for a Panamax vessel of, say 65,000/70,000 tons from $18,000 per day to $3,500 per day. Paradoxically, the rates for the larger vessel had not only been more severely hit but in many cases had even declined below the actual level of rates for the smaller "handisize" vessels.
The catastrophic decline in freight rates is due basically to the world economic depression, resulting in a growing excess of shipping supply over demand. The market situation throughout 1982 and 1983 has been one of worldwide heavy losses by shipowners, bankruptcies, debt rescheduling, deferred delivery of new vessels and increased laying-up of vessels.
Even if the activities of Irish Shipping Limited had been confined to the operation of their wholly-owned fleet of four vessels totalling about 153,000 tons deadweight, the collapse of the freight market would have posed serious problems for the company. These problems have been seriously aggravated by the fact that the company had chartered-in nine vessels, foreign owned and with foreign crews, totalling 393,000 tons deadweight to cater for expected increases in coal, steel and lumber shipments which never materialised. The vessels, which were chartered-in under separate agreements terminating on various dates from 1986 to 1990, comprise four Panamax type bulk carriers of from 59,000 to 64,000 tons deadweight and five "handisize" vessels of from 27,000 to 32,000 tons deadweight.
The company's decision to enter into long-term charter agreements for nine vessels has proved disastrous. The agreements, which were entered into without the knowledge or consent of either the Minister for Transport or the Minister for Finance, were made on the assumption that market freight rates would be significantly higher than the fixed rates at which the ships were chartered. But instead, the market collapsed leaving Irish Shipping with nine vessels earning only a fraction of the cost to the company under the charter agreements.
Since 1973 Irish Shipping Limited have been a partner with the Cardiff shipowners, Reardon Smith Line, in an operating pool or consortium of vessels known as Celtic Bulk Carriers. The creation of the pool enabled Celtic Bulk Carriers to quote for business which neither party alone would have had the capacity to handle. Celtic Bulk Carriers were successful in obtaining substantial time-charter business for bulk cargoes, particularly steel — Europe to the east coast of the United States — and timber — west coast of the United States to Europe — and before the world freight market collapsed were the biggest single operator in these two trades. Unfortunately, the Reardon Smith Line have themselves run into financial difficulties. This has compounded the financial problems of Irish Shipping Limited, because Reardon Smith are not at this time in a position to meet their share of the joint commitments they had entered into with Irish Shipping under the Celtic Bulk Carriers pooling agreement.
Faced, therefore, with an increasingly critical financial situation, Irish Shipping Limited recently entered into negotiations with the foreign owners of the nine chartered-in vessels with a view to seeking some reduction in the financial burdens of the long-term charters. I am glad to be able to say that as a result of the negotiations significant concessions have been obtained from the owners concerned. For obvious commercial reasons, the details cannot be disclosed but I can say that they mean very substantial cash savings to Irish Shipping in the period up to 31 December 1985.
It was part of the agreement with the largest shipowner concerned, from whom the greatest concessions were obtained, that the company would purchase for $42 million two of the chartered-in vessels, theSlaney Venture, a Panamax vessel of about 62,000 tons deadweight constructed in 1982, and the Celtic Venture, a “handisize” vessel of about 32,000 tons constructed in 1983. The company's position is such that they have little choice but to purchase the two vessels under long-term financing arrangements if their short-term financial commitments, which are at present extremely onerous, are to be reduced to tolerable levels.
Irish Shipping Limited also find it necessary, as a temporary expedient, to continue the foreign crewing of the two vessels as at present. The company have informed me that the replacement of the foreign crews by Irish crews would involve the company in conversion costs amounting to about £500,000 and additional operating costs of £1.6 million a year. The company simply cannot afford these additional costs at the present time. When things get back to normality, however, the company's intention is that Irish crews will be employed on the vessels.
The loan on the two vessels being acquired by Irish Shipping Limited will be secured partly by way of a mortgage on the vessels and the balance by way of a guarantee of the Minister for Finance.
Following the negotiations with the foreign shipowners the board of Irish Shipping Limited submitted a report to me in relation to the company's overall financial situation and having taken account of the substantial concessions secured from the shipowners, have requested limited support from the Government by way of Exchequer guarantees of borrowings. As already indicated, the company require an Exchequer guarantee of $12.5 million, or about £10.7 million at current exchange rates, towards the cost of purchasing the two vessels. In addition, the company estimate that they will need further guaranteed borrowings of slightly more than £12 million to meet their projected cash deficit in the period up to the end of 1985. A recovery of the shipping market in the meantime would, of course, reduce the size of the projected cash deficit.
There is little doubt that Irish Shipping Limited face a very difficult time over the next few years. There is no point in my speculating at this stage on market rates in 1986 or beyond or on what the company's financial position will be in those years. There are too many imponderables involved such as the progress of the world economy, future oil prices, and so on.
Recently there has been a slight improvement in market freight rates due, some experts believe, to the upswing in the United States economy, but it is as difficult to predict when a real improvement will occur as it would have been to envisage three years ago the depth of the present shipping recession. It has to be assumed that the present recession will not continue indefinitely and that rates will return to commercial levels in due course. The problem faced by shipping companies during a recession is that of staying in business in order to be able to benefit when the inevitable upturn in trade and market rates occurs. Irish Shipping Limited believe that the market will have recovered sufficiently by 1986 to enable them to resume viable operation.
Irish Shipping Limited had an enviable record of profitable operation in the past in one of the world's most competitive market places. The company are now facing the most serious challenge in their history and the Government believe that they should be given the limited Exchequer support they are now seeking. Before this can be done, however, it is necessary to extend the statutory limit, which has already been reached, on guaranteed borrowing by the company and, as already indicated, that is the main purpose of the Bill.
Under the provisions of the Bill, it is intended that the level of remuneration and allowances of the chief officer of Irish Shipping Limited, will in future be subject to my approval, in consultation with the Minister for the Public Service. This is in line with Government policy since the acceptance of the recommendations of the review body on higher remuneration in the public service — the Devlin Report — and has been implemented for most State bodies. Alterations to the company's superannuation arrangements are also being brought under control in line with the position in other State bodies.
The company are also being required to adhere to Government guidelines and policy on pay and conditions of employment and to comply with directives in this regard. May I say a word of thanks to the Opposition for taking this Bill at short notice because it has to be passed before the end of this month?
I commend the Bill to the House.