I move:
That Dáil Éireann calls on the Government to take all the necessary action to ensure the continuance of Irish Steel Holdings Limited.
I propose to share my time with my colleague Deputy Ahern.
Private Members' Business. - Irish Steel Holdings Limited: Motion.
Will Deputies who want to hold a conversation please leave the Chamber?
By moving this motion we will be debating one of the most important matters to come before the House during Private Members' Business. We are talking about the last large remaining industry within the Cork area. It is unacceptable that we should be contemplating redundancies in this firm, much less closure of the firm.
On 28 June 1984 a supplementary estimate was introduced to give effect to the £89 million being given in equity to Irish Steel. I should like to refer to some of the items which arose during that debate. The figures for 1983-1984 we were told showed a loss of £21 million made up as follows: depreciation £4.5 million, operating loss £4.9 million and the remaining £12 million for interest on borrowings. A year later we were told that the firm recorded a loss of £17 million. That involved £5 million in operating losses, £4 million depreciation, £6 million financial charges and £2 million for foreign currency transaction loss. Some improvement was shown there in 12 months and that improvement in the operation was indicated by consultants who submitted various reports in the past few years. They indicated that the firm could be made viable. The uncertainty being created for Irish Steel is totally unacceptable. The thought of redundancy and closure has the obvious effect of undermining the workforce. This should not have been allowed to develop. The Minister must take full responsibility for the frame of mind of the workers.
A year ago it was indicated that energy costs were having a tremendous effect on the viability of the company. It was stated that a warning was issued about the adverse effects these costs would have. A year later we are told that energy costs are exceptionally high. Why did we have to wait until now when the warning sounds were issued in June 1984? At that time the Minister was asked to discuss this matter with the Minister for Energy. We have no evidence of whether that meeting took place but one thing is sure: the firm tell us energy costs are still exceptionally high. The adaptable structure of the operation of Irish Steel is a good enough reason to ensure its continuance. The consultants employed to inquire into the viability of this firm have indicated clearly that it can be made viable. Market prices have refused to rise and the firm have to bear a massive increase of 50 per cent on the price of their raw material which, for the most part, is scrap.
Although immediate targets have been achieved, the firm are seriously disadvantaged by the unacceptable level of their cost structure. Six months ago the chairman advised the board and the Minister that, if there were no improvements in these factors, the company would face financial problems during the second half of 1985. The employees' representatives were apprised of that last February. It is the board's conviction that the company must do what is necessary to bring about a significant improvement in their affairs.
If the outflow of cash is not staunched at once, the board say they will be left with no alternative but to recommend to the Minister that the plant cease to trade and close down. For this side of the House and the people we represent that is totally unacceptable: It is unacceptable that it should even be considered in the light of all the circumstances. The Government have agreed in company with other EC members to apply for further funding for the steel industry. We have been left in no doubt that this application is nothing more than a formality. I hope the Minister will tell us otherwise. Surely he and the Government are aware of the contribution Irish Steel make to the economy.
I should like to put on record some elements of that contribution. The salaries and wages bill of the company amounts to £10 million while the PAYE and PRSI payments to the Government amount to £4 million. In addition there are payments to the ESB of £10 million, to Bord Gáis of £1.5 million, to Hammond Lane, £6 million while £1 million goes on freight. Side contracts amount to £750,000. Ferry and bus services amount to £300,000 while in respect of general stores and engineering the amount is £1.5 million. A sum of £750,000 is spent on lime supplies. There is a sum of £750,000, too, in respect of oxygen, while insurances amount to £600,000 and pension premiums to £700,000. The payments in respect of other services such as rates and harbour dues, rents and so on account for another £1 million making a total of £24.85 million.
The company indicate that their contribution to the balance of payments is £45 million. The number of people employed directly in Irish Steel is 650. In addition, a further 400 persons are employed in the many firms concerned. All these jobs are in serious doubt because of the uncertainty and the lack of commitment on the part of the Government in regard to Irish Steel. It is hardly necessary for me to name the various firms, but it is necessary to emphasise that 40 per cent of the employees of Irish Steel are from the town of Cobh and that town has already suffered the closure of Marathon and of Verolme Cork Dockyard in addition to the redundancies at NET where further redundancies are proposed and also the loss of jobs in the supporting industries. What is of great concern to many of us is that the trade unions involved in Irish Steel were not invited to discussions prior to the recent announcements by management.
It is difficult to understand why the situation in Irish Steel should be as it is. I note from information supplied to me that overtime at the company costs £2 million per year. I do not wish to use the word "closure" too often because we on this side of the House, and many others too I am sure, will not accept the closure of Irish Steel even for the shortest possible time. However, the estimated cost of the closure of Irish Steel is £7.3 million.
I understand the chairman of the company has told the workers that when making the investment last year, the Government made it clear that there would be no more money for Irish Steel. If that is the case, why the approach to the Community? But if after saying that there is to be no more money for the company there is to be money forthcoming, who will believe such threats from the Government in the future? It is the specific responsibility of the Minister for Industry, Trade, Commerce and Tourism to resolve this mess. One could use much stronger words to describe the situation. The workers have made their contribution towards the attainment of all production and sales targets since the commencement of the developed industry. We are all very conscious of the huge investments that had to be made in Irish Steel. We realise fully that any proposal for further investment in the company must be given full and deep consideration.
There is a massive financial argument in favour of keeping the company in operation. I have outlined the numbers of jobs that would be lost and the various implications of closure in terms of returns to the Exchequer and a further drain on the social welfare system, not to mention the shattering effect a closure of this magnitude would have on the people of Cork city and county who are reeling from so many closures and redundancies.
The reason for the shameful manner in which the Minister is using the workers of Irish Steel can be known only to him. One wonders what he is playing at. The board have taken a decision that there will be no pay increase before the end of 1986 at the earliest and that the workforce must be reduced by 100 with redundancy paid at statutory terms plus one week's pay. That is a very bitter pill for anyone to swallow, but the workers at Irish Steel have demonstrated their restraint when restraint was required. They have not had a wage increase for about 18 months. What is cynical about the Minister's package is that he has not said that even if it is accepted he will support the company financially. We must therefore reach the inescapable conclusion that the Minister has decided to confront the workers with measures so unpalatable, especially in relation to redundancy, that he will bring about a confrontation between workers and management at the plant and then close it with the least damage possible politically to the Government.
What we are asking for is nothing more nor less than honesty. It is a sad reflection on the Government that they are prepared to deal so callously with men, many of whom have risked their health in such a demanding industry, and to add them as another statistic to the already massive dole queue. Where is the social conscience that we heard so much about in regard to this Government? In September 1983 the Government engaged consultants to assess Irish Steel Holdings' viability, prospects and so on. Having already received a report in 1982, the December 1983 report was favourable on the results achieved, also expressing the belief that, from a marketing point of view, Irish Steel Holdings Ltd. had overcome the worst and most difficult hurdle, that is a significant breakthrough into the European market. Our contention now is that we do not wish to hear talk of redundancies never mind closures. Redundancies and redundancy payments have become inescapable traps for workers. A recent description fits the bill when they were termed as fools gold.
As the nation is well aware, we have had sufficient redundancies in the Cork area. Under the terms of this motion we want this Government to ensure, by their action, the continuance of Irish Steel Holdings Ltd. Does it not make more economic sense to provide the necessary finance to tide this company over their little shortfall for the second half of this year, thereby safeguarding the vast amount of money put into the company over the years? Surely it is not the Minister's intention to allow the situation to deteriorate to the extent that the firm would be placed in jeopardy through uncertain action on the part of the Minister, with doubt being created and the morale of the workers being undermined?
Is it not time that the Minister and the Government took a decision on Irish Steel Holdings Ltd. and stopped toying with the company? There were soundings before the local elections when we were hopeful of a positive response on the part of the Government. Time has drifted on and because of the atmosphere created, because of the uncertainty for the company's employees and those employed in supporting industries, we have tabled this motion. Bearing in mind the prospects of the industry, the workers and the entire economic life of the Cork region we are hopeful that the Government — who have a large part to play in this instance — will quietly ensure the continuance of this company, restoring the morale and confidence of its workers. We are pleading with the Government that this uncertainty should no longer prevail. It is totally unacceptable.
Not so long ago, on a motion dealing with employment in this area, the Minister used words to the effect that they knew there had been many job losses in the Cork area but they could do nothing about them. This is one instance in which they can do something because the ball is firmly in their court. There were other firms in relation to which perhaps the Government could have contended with some justification that they had no role to play, when perhaps that interpretation was correct. Bearing in mind Government equity in this company, they are in a position to act and ensure its continuance which I might stress again is the function of the Minister and of this Government.
As we have done on numerous occasions in the three years I have been a Member of this House it is sad that we are discussing this evening the future of another industry in the Cork region. We have seen the closure of Fords, Dunlops, Verolme (Cork) Dockyard, Maritime Industries and others. Irish Steel Holdings Ltd. face an uncertain future.
On 28 June 1984 the Irish Steel (Amendment) Bill, 1984, was introduced in this House by the Minister now present. In the course of his Second Stage remarks the Minister was explicit that henceforth Irish Steel Holdings Ltd. would have to live or die alone, they would have to stand on their own two feet. Under the provisions of that Bill £89 million was allocated towards the equity of that company. To the best of my knowledge, that investment by the Government was not made for a considerable time thereafter. I should be glad if the Minister would inform us as to what occasioned that delay. We note from a statement by the chairman of Irish Steel Holdings Ltd. that the estimated financial charges for the coming year are £6 million. It would be interesting to know by how much that estimated £6 million would have been reduced and what would have been the financial charge had the equity been paid by the Government soon after the passage of that Bill.
The future of Irish Steel Holdings Ltd. must be viewed in the context of the Cork region as a whole and not in isolation. At present there are 650 persons directly employed by the company, 40 per cent of whom are from the town of Cobh and an additional 400 persons employed by a number of other firms who would be in grave danger of losing their jobs were Irish Steel Holdings Ltd. to close. Not only are there 400 other jobs indirectly dependent on Irish Steel Holdings Ltd. but there are also many other small firms supplying goods and trading with them, such as the ESB, Marine Transport, John A. Wood, Irish Industrial Gases, who would also be in imminent danger if the Irish Steel were to close. Therefore the roll-on effect of the closure of Irish Steel Holdings Ltd. would be catastrophic for the region.
It must be remembered that in Cobh alone over the past two years we have already seen the closure of Maritime Industries, Verolme Dockyard, redundacies in NET and in recent weeks there have been rumours of further redundancies afoot in NET. In a statement by the chairman of Irish Steel Holdings Ltd, on 13 June he referred to that he called a number of disabilities. They were as follows: average costs were exceptionally high, market prices had stubbornly refused to rise, they had had to bear a massive increase up to 50 per cent in the price of scrap and in addition, although their immediate sale targets had been achieved they were seriously disadvantaged by the unacceptable level of their own cost structure. He also said that the only one of those of which the company was in control was the cost of labour and on those grounds the board decided to implement the following: there was to be an instant pay freeze at all levels until the end of 1986, the numbers employed by the company would be reduced by approximately 100 persons, redundancy payments were to be restricted to statutory requirements plus one week's pay for every year of service, and a 1.7 per cent increase by way of analogue review for 1984 which was recommended by the Labour Court would be paid. According to the chairman these decisions are the only way to resolve the crisis in the industry and extend the life of the company and that in consequence they are not negotiable. That statement was made to bring peace in the area. By reducing the workforce by approximately 100 workers £2 million will be saved.
I cannot see how this will help significantly in saving Irish Steel. Furthermore the wage freeze until the end of 1986 is not easily acceptable as the workers have not had an increase for approximately 18 months. The big question is, do these decisions regarding redundancies and a wage freeze mean anything to the Minister who has not said that even if the board's decisions are accepted by the workforce, he will financially support the company? Regarding the other disabilities the Minister and the Government have control over, one of the main cost factors affecting Irish steel is the cost of electricity and gas. To date the Minister has not made known whether any moves have been made to offer assistance in these fields. The price of scrap which went up by 50 per cent has thrown the whole budget position of Irish Steel Limited out of line. In conjunction with the refusal of the market prices to rise, it has resulted in the company not improving their trading position.
Undoubtedly neither the Minister nor Irish Steel have control of open market forces so we cannot blame them for that. But the blame for the poor results cannot be placed on the shoulders of the workers as the production targets set by the company were achieved and surpassed over the past three years. The targets for the years 1982-83 to 1984-85 were 390,000 tonnes and the achieved output was 395,000 tonnes. From these results it can be seen that the workforce were performing as required, in some cases beyond requirement. The salary and wage bill of the company is £10 million and in addition £4 million is paid to the Government for PAYE and PRSI contributions. Should Irish Steel close it would mean the loss of that amount of money to the Exchequer from a going concern and the Government would have to pay out social welfare instead. In the event of the worst coming to the worst, that is, 1,000 people at least being made unemployed, approximately £7 million, not taking into account agreed redundancies above the statutory level, would have to be paid out in the first year, not to speak of the amount of social welfare that would have to be paid in subsequent years because the likelihood of a large number of jobs coming into the Cork region in the near future is extremely dim.
Another factor that must be taken into account is the contribution to the balance of payments being made by Irish Steel. This amounts to £45 million. Should Irish steel close £45 million will be lost to the Exchequer and the Department of Social Welfare will be paying out anything from £7 million upwards. I cannot see who that would benefit the economy. The position of Irish Steel is uncertain and the workers are in a similar state of mind to the 1,100 workers who over a year ago were made redundant in Verolme dockyard. The workers do not know whether they are coming or going and they are under tremendous psychological pressure. Under these circumstances they cannot function at their optimum. This uncertainty is doing no good for Irish Steel, for Cobh, for Cork or for other areas where the workers live. It is up to the Minister to say what he intends doing. It is quite clear that the benefits to the State outweigh the losses that would ensure if the plant closed, so the plant should be kept open. We in Fianna Fáil call on the Government to take all the necessary action to ensure the continuance of Irish Steel Holdings Limited.
We note that the Minister's amendment "expresses its confidence that the Government..." We do not have confidence in the Government. Any confidence has been eroded over the past three years. In the Cobh area we saw the closure of the two ship building berths, Verolme dockyard and Marathon. After that the Government decided to sink the Irish ships. Irish Shipping went into liquidation. That coupled with many other decisions made by the Government is why we do not have confidence in anything that the Government say they will do. In this case the Government are not saying whether or not they will do anything. It seems that the Minister has manoeuvred the board of Irish Steel Limited into a confrontation course with the unions, thus giving himself an excuse to scuttle Irish Steel. This cannot be allowed to happen. The Minister must come clean and not hide behind the board of Irish Steel.
I move amendment No. 1:
To delete all words after "Dáil Éireann" and substitute the following:
"expresses its confidence that the Government in taking a decision on the request from Irish Steel Ltd. for additional support in the light of its financial results in 1984/85 will consider all the relevant facts including the potential commercial viability of the Haulbowline plant; the impact which closure would have on the Cork area; the effectiveness of cost cutting measures recently announced by the Company, and, the competing demands for scarce Exchequer resources."
Around this time last year the Oireachtas passed legislation, the Irish Steel Limited (Amendment) Act, 1984, the purpose of which was to increase the authorised share capital of Irish Steel Limited thereby enabling the company to repay some of the £106 million which they owed by means of an equity injection. I explained in clear terms at the time that the option facing the Oireachtas was the closure of Irish Steel or committing £89 million of taxpayers' money to enable the company to continue in operation.
Irish Steel were to be given a final opportunity to prove themselves as a commercial enterprise. I stated quite clearly that, having regard to EC policy in this area, from the end of 1984 the company would have to finance their operations in a normal commercial manner without any further recourse to the State.
I was encouraged by the response from the Opposition when I moved Second Stage of the enabling legislation in the House last year. For instance, Deputy Reynolds stated that the criterion in regard to Irish Steel and all other semi-State bodies when Fianna Fáil were in Government was viability. This was evidenced, he claimed, by the closure of the National Film Studios of Ireland and Min Fhéir Teoranta by the then Government. Deputy Reynolds also expressed serious concern about investing even that £89 million of taxpayers' money in Irish Steel. Thus I am sure that all Members of this House and the taxpayers will now be as concerned as I am that the £89 million aid package has failed to achieve its objective and will want to know why Irish Steel are now requesting further financial support.
Without going into too much detail I would like to recall the background which led the Government into recommending that Irish Steel should receive £89 million in equity last year. Three consultancy reports were prepared by the French firm SOFRESID in the period September 1982 to January 1984. On the basis of the last report the EC Commission and the Government accepted that Irish Steel could meet the EC Commission's requirements for financial viability in 1986 based on certain assumptions made regarding prices and sales volumes and on condition that the Council of Ministers approved a proposal from the Commission to give Irish Steel additional production and sales quotas to enable them to sell their products into European and other markets.
The Government decided to invest £89 million in equity in Irish Steel on the basis that the company had a reasonable chance of achieving the SOFRESID projections. Irish Steel received the £89 million in five tranches on the following dates in 1984: £20 million on 29 June, £16 million on 17 July, £14 million on 17 September, £10 million on 9 November, £29 million on 21 December.
Some £68 million of this, was used to repay all of the company's domestic bank borrowings which were covered by ministerial guarantees. As the borrowing was guaranteed by the taxpayer anyway, the repayment reduced by £68 million the exposure of the taxpayer. In this sense the injection of £68 million of the £89 million represented no more than a bookkeeping transaction from the point of view of the taxpayer. The balance of the sum was used for working capital purposes and to finance the company's losses.
At present some £39 million in outstanding guaranteed borrowings are owed by Irish Steel in respect of the following: ECSC loan (20 million US dollars) — £19.3 million; ECSC loan (68 million French francs) — £7.1 million; leasing agreements — £12.6 million. I should add that if the company were closed the Government would be called on to honour the guarantees given.
In the final months of 1984 my Department became aware of the fact that Irish Steel's financial position and their prospects of future viability were deteriorating. I instructed that a report on the company should be prepared and this was completed in early December. The indications then were that the SOFRESID forecasts on price and other key variables would not be achieved primarily because the company were unable to pass on by way of increased selling prices the huge increase in the cost of scrap, their basic raw material. This report also indicated that there was a possibility that the £89 million investment package might not prove sufficient to enable the company to continue in operation without further assistance.
I did not consider that matters were so serious that a decision to close the company should be considered by the Government at that time as the Irish Steel Board, in my view, were best equipped to judge the magnitude of the company's financial problems and the implications of the deterioration in the company's performance. I informed the chairman of Irish Steel in the New Year of my concerns about the gravity of the company's projected financial results. He was told that a decision on Irish Steel's future would be taken when the Government had an opportunity to consider my Department's report on the company's rolled-over five year corporate plan.
When the corporate plan was received in late January, officials of my Department and the Department of Finance examined it thoroughly in consultation with the company's senior management. A detailed report was completed and this is now under consideration by the Government together with certain recommendations regarding the future of the company.
Before going into the reasons for Irish Steel's present difficulties, I should make it clear that my Department have been monitoring the affairs of the company very closely for quite some time on the basis, inter alia, of a detailed monthly return of key indices. In addition two civil servants, one each from my Department and the Department of Finance, were appointed to the board of Irish Steel last March. Because of the insight and knowledge available to my officials I am confident that the analysis presented to the Government about Irish Steel's position is as accurate as such a report can be.
The main negative factors facing Irish Steel at present are as follows: (1) the sharp rise in ferrous scrap prices; (ii) the continued depression in steel selling prices; (iii) the high electricity costs relative to their competitors; (iv) high labour costs; and (v) the strength of the US dollar which has increased the burden of financial charges as well as giving rise to as yet unrealised exchange losses.
The main deviation, however, amongst these five, from forecasted costs which Irish Steel faced for nearly 18 months was the high price of scrap relative to the sales price of steel. It is important that Deputies opposite recognise that as scrap represents around 40 per cent of the cost per tonne of finished steel, any significant price development affecting this essential raw material impacts quite significantly on the financial position of the company. Scrap prices in the Community rose sharply in 1984 and in early 1985. Such was the extent of this price rise that Irish Steel estimate that, compared with the SOFRESID assumption, they had to pay over £4 million extra for scrap in their financial year which ended on 30 June 1985. Irish Steel endeavour to utilise all available domestic scrap, but their needs are such that they must import about 70 per cent of their total scrap requirements. The increase in scrap prices was caused by the strength of the dollar and by the increasing demand by third countries for Community scrap as opposed to US scrap. I tried on a number of occasions at meetings of the Council of Ministers to get support for a proposal to introduce restrictions on the export of scrap to countries outside the Community. The Commission did not respond positively to my request as the larger member states — France, the UK, Germany and the Netherlands — favour the existing policy of free trade.
In recent months the price of scrap has fallen. The US composite price for scrap fell from about US $87 per tonne in March 1985 to about US $66 per tonne in June 1985. This drop in price may be just a seasonal or temporary variation. It is difficult to predict how scrap prices will develop in the long term. The EC Commission in its recent report General Objectives for Steel 1990 states that the price of scrap will not drop back to the level that made the electric are process so attractive to steelmakers. The Commission does not offer any encouragement to the effect that, apart from seasonal trends, the price of scrap will rise again.
I might digress for a moment to explain that in addition to the factors arising from the dollar, which it might be argued are temporary factors since the dollar may revert to a more normal relationship to other currencies, there is the underlying structural problem that over the last few years large numbers of steelmakers have invested in electric are furnaces of the type we have in Haulbowline. That is because this was the most profitable, efficient and flexible means of producing steel at the time. That type of steel mill relies on and can use only scrap. It cannot use raw iron as the integrated mills, which were less profitable at the time, could do. The consequence of the type of mill we have being profitable was that more people got into it, but there was a finite supply of scrap in the world. Therefore there were more people competing for the same amount of scrap. That remains the case. Previously we had a market for scrap in Europe which was virtually self-contained — in other words, we produced enough scrap to supply our own mills. As a result of increased investment in electric are furnaces outside the Community more and more steel manufacturers are coming into Europe and looking for scrap here, thereby pushing up the price of scrap in Europe. That is unlikely to change and it creates a continuing structural difficulty for steel production based on the type of process in Irish Steel which was so profitable in the past. We cannot ignore those factors in our assessment of the position.
The price that Irish Steel must pay for scrap is outside their control. So too is the price they receive for their products on the European marketplace. It is now clear that Irish Steel will not achieve the sales price assumptions projected by SOFRESID. Current market prices are considerably below the consultants' expectation. It is very difficult, if not impossible, to forecast with certainty the future development of steel prices, yet the forecasting of sales prices is a crucial determinant in any calculation of Irish Steel's future viability. If sales prices are off target by £1 per tonne this could result in a reduction in operating profit of up to £250,000.
My Department have examined, as far as they can, the likely market trends for steel in the ECSC and in other markets. Particular attention has been paid to the demand for steel in the engineering-construction industry because it is in that sector that the products produced by Irish Steel are mainly used. The market in 1984 in the Community in this sector was highly unprofitable due to the substantial drop in demand for new buildings and new civil engineering projects, because of the decline in the volume of public capital expenditure in practically all European countries. The prospects for a substantial recovery in the engineering-construction sector in the Community are not great.
Turning to the medium term demand for steel, this is covered in the EC Commission's Report General Objectives for Steel 1990. It makes depressing reading. The Commission considers that overall demand in 1990 may not be any greater than it was last year. Over-capacity still exists in the Community steel industry. This is in spite of a considerable reduction in capacity of some 30 million tonnes achieved over the past five years. As a consequence of over-capacity and slack demand, price increases are expected to be very modest and may only cover increases in raw material costs.
It should also be noted that Irish Steel have to operate in a market environment that is fairly rigidly controlled by ECSC rules. The Council of Ministers meeting at Elsinore in 1982 decided on a series of "anti-crisis" measures to restructure the steel industry in Europe in an attempt to prevent the demise of the industry. These "anti-crisis" rules are due to expire at the end of this year. The most important rules provide that
(a) all aids to the industry must be notified to the Commission and approved by it and no aid may be paid after 1985;
(b) steel undertakings cannot produce or deliver more than what is allocated to them by means of the quota system;
(c) the minimum price rules for certain steel products must be observed; and
(d) imports from the Community's main trading partners are restricted by way of voluntary arrangements.
There has been a high cost in terms of jobs lost. It is estimated that between 1974 and 1984 some 350,000 jobs were lost in the steel industry, or 44 per cent of persons employed in December 1974. Irish Steel, it should not be forgotten, reduced their workforce from 1,100 to 650 within this period.
What of the future? In the report already referred to the European Commission cautions that forecasting employment in the iron and steel industry in 1990 is hazardous owing to the many factors to be taken into consideration. It nevertheless considers that "it is an inescapable fact that employment in steel will in the next six years be subjected to very severe cutbacks". This is on top of the reductions experienced already. The picture thus is bleak not only in Ireland but in all of Europe.
In the next five years the Commission reckons that there will continue to be significant surplus capacity and, as I have already mentioned, this structural problem will result in there being pressure on prices and on the efforts of steel undertakings to improve their level of competitiveness. There are a few bright spots on the horizon but unfortunately in products not at this time manufactured by Irish Steel. For example, demand is moving increasingly towards quality steel products, so-called speciality steels, with a higher value added. As against this there appears to be a continuing change in the pattern of consumption as non-steel based products are substituted for steel products in uses that were previously the preserve of steelmakers.
There is also the problem of a serious threat from exports from non-EC countries where steel production capacity has rapidly increased in recent years. The European market is threatened by the emerging steel industries of several developing countries whose modern mills can produce steel at very competitive prices. As it is forecast that there will be a stagnation in world consumption between 1985 and 1990, these countries will focus their attention on the Community and on market such as the US, where the Community industry is trying to sell. Another problem is that world capacity could increase by some 100 million tonnes which would almost certainly lead to a further imbalance between supply and demand, adding to the imbalance which already exists. This means that the Community steel industry is going to face extremely intensive pressure in the next five years and further capacity cuts are, therefore, inevitable.
To date within the ECSC special account has been taken of Irish Steel. The Commission has not insisted on the cuts in production capacity which were applied in other member states but has allowed the company sufficient flexibility through the production quota system to increase their production levels so as to achieve certain economies of scale thereby enabling Irish Steel to endeavour to attain the viability targets indicated by the consultants SOFRESID.
Irish Steel have increased their production more or less in line with forecasts. However, that positive development is but one part of the equation. Extra production does not make commercial sense if the company continue to lose money on each tonne of steel they produce. Not wishing to sound too pessimistic, I would like to say that it is a credit to the company and their workforce that they were able to produce and sell so much product in the last 12 months in the face of extreme competition.
Irish Steel's financial charges have also risen in their current financial year as compared to forecast. For instance, their operating loss was greater than expected. There was some delay in the timing of the equity injections as compared to forecast. But, in addition, the company incurred foreign exchange translation losses which were mainly due to the strength of the US dollar. For instance, their US $20 million loan, which is now valued at over £19 million at current rates of exchange, was valued at £9.5 million when the loan was taken out in 1979.
The chairman of Irish Steel has already stated that the company will have a net loss of around £17 million in their current financial year. That figure includes £5 million in operating losses; £4 million in depreciation charges; £6 million in financial charges and a £2 million foreign currency translation loss. This result is very disappointing when compared to what had been projected. The losses this year will be nearly doubled those expected when the House approved the £89 million aid package last year.
In April 1985 Irish Steel requested additional State equity of £25 million. This additional equity was sought because the company considered that the £89 million investment would prove inadequate. The fact that Irish Steel are running out of cash so soon after a massive investment is a clear indication of the magnitude of the task facing the company.
When the board of Irish Steel announced their redundancy and pay proposals in June 1985 I was not surprised to hear about these measures. My own view is that these measures could profitably have been embarked upon sooner, as the company had indications as early as last September that they would likely be facing serious financial constraints. Let me make it clear to Deputy Lyons that these are the proposals of the board of the company and that it is the function of that board to deal with matters of that kind. While I support the board's efforts to reduce costs, and I commend them for such achievement as they have had in the past in this regard, I do not wish to intervene in the negotiations between the board, management and unions.
I explained my views to a delegation of Irish Steel workers lead by the vice-president of the ITGWU at a meeting on 24 June last. I impressed upon the delegation the very serious financial position of Irish Steel. The company simply do not have the money to pay redundancy terms similar to those which were negotiated in respect of other firms which closed or rationalised their operations in the Cork region. I also emphasised that the board's offer to pay one week's pay over and above statutory entitlement had not been approved by the Government; nor indeed had the proposed payment of the 1.7 per cent under the Analogue agreement. As funding is available from the ECSC to assist redundant steel workers, I have, however, instructed my Department to approach the Commission with the object of finding out whether it would be prepared to provide financial aid towards redundancies. Preliminary contact has been made with the Commission.
Provided certain strict criteria and some conditions are fulfilled, it may be possible to obtain financial assistance from the Commission towards redundancy costs. I must emphasise that it is by no means certain that an application from the Government would be approved. However, I have instructed my officials to pursue this matter urgently. Hopefully, by the end of the year some financial assistance might be available from the Commission.
My Department have also reminded the IDA that firms re-employing redundant steelworkers may be entitled to avail of loans at reduced interest rates from the Commission. Thus there would be a real incentive for firms to employ redundant steelworkers either in existing or new projects. I should add that projects in non-industrial sectors such as tourism are also eligible to benefit from these loans.
What then is the future of Irish Steel? The Government will, I hope, make a decision in the coming weeks in response to the company's request for additional equity. I think the House should know, at least in general terms, the main factors which have to be considered by the Government.
First, there is the question of financial viability. I have examined a number of scenarios which make various assumptions about sales prices, output and input costs. Currently Irish Steel could not now be considered strictly viable in the commercial sense of the word. The House is aware that the national plan Building on Reality makes it clear that the affairs of commercial semi-State bodies must be examined from a commercial point of view.
At this juncture I think it timely to recall the State has, up to the present, committed nearly £190 million to Irish Steel by way of equity financing, grants and bank guarantees, approximately £130,000 per worker.
In return for all this money, the company's accumulated net losses to date are approximately £115 million. One must ask if the company will be able to reverse their fortunes in an extremely hostile market-place where factors beyond their control will continue to militate against every effort to improve profitability.
If Irish Steel received additional equity, that investment in itself would not be sufficient to keep the company in operation. Where possible, the company must reduce costs where they have control over them. Thus the reaction of the unions to the cost-cutting measures announced recently by the ISL board is of crucial importance to the future of Irish Steel. It is a factor in any decision.
I reckon that Irish Steel must demonstrate that they can reduce their labour costs by at least 10 per cent and thereby contribute to whatever package deal which can be constructed for consideration. I am confident that Members on all sides of the House will see this as a necessary part of any proposals which might be put before them for approval.
Another crucial factor under examination at present is the price of electricity paid by Irish Steel. After scrap and labour costs, this vital but expensive energy source is the next most important element of production costs. In the context of this year's budget the Government announced measures to reduce the cost of electricity to all industrial users. For Irish Steel this reduction came to around 7.5 per cent. Taking this reduction into account Irish Steel paid in the region of £7.3 million to the ESB in the year 1984-85. It is widely recognised that Irish Steel and indeed heavy industrial users generally are paying significantly more for their electricity than their European competitors. If the company's electricity costs were to be reduced further this year it would be necessary, in order to comply with EC competition policy, to extend a concession to some other industrial users. The cost of this concession might well have to be passed on to other consumers. Deputy Lyons did not advert to this point.
Social welfare has also to be paid for.
Another element to be considered is the fact that the EC Commission has to approve the payment of whatever moneys which might be advanced to Irish Steel. On 26 April last the Council of Ministers gave its assent to a Commission proposal to permit the payment of additional aid to steel undertakings in 1985. Member states had until 31 May to notify the Commission of their aid proposals.
The Government submitted an aid application to the Commission on 30 May 1985 for approval to invest up to a maximum of £24 million in Irish Steel. It was made clear to the Commission and to Irish Steel that this application was without prejudice to the Government's decision about the future of the company. It was noncommittal and should be seen solely as a piece of contingency planning. The amount sought is the absolute maximum which would be consistent with the EC Commission's current formula for the payment of additional aid to steel undertakings. This formula says that financial charges of undertakings should, by the provision of aid, not be brought below 4 per cent of turnover. This application was presented by my Department to the EC Commission and experts from other Member States at a meeting in Brussels last week. The Commission is required to give its decisions on all aid applications by the end of this month. Additional moneys cannot be paid to Irish Steel in the absence of a positive decision from the Commission.
I would recall that on 26 April the Council also decided that no operating or investment aid could be paid to steel industries after 1985. Consequently, if the Government were to decide to advance moneys to Irish Steel all these funds would have to be paid over before the end of the year.
It would be unthinkable for any Government not to take into account social as well as commercial factors before taking a decision about Irish Steel's future.
The Minister's time is up.
I will concede to the Minister sufficient time to permit him to conclude his speech.
I appreciate that offer by Deputy Fitzgerald.
My Department have, therefore, examined in detail the direct and indirect costs that would arise if ISL were unable to continue. There is no dispute that this would have an adverse impact on industries and services which do business with the company.
It is difficult to estimate with any degree of accuracy the extent of additional job losses outside the company which would result from the closure of Irish Steel. It is not clear, for example, whether suppliers and service companies would be forced to lay off employees or whether they might be deployed elsewhere. All that can be said is that some 200 to 300 jobs would be put at risk, but not necessarily lost. Recent assertions and reports which quoted a figure of up to 400 job losses in other industries are an exaggeration. One must also consider the benefit to the economy of tax paid and consumer spending by Irish Steel workers. This does not feature in a commercial balance sheet but is a significant factor. It must be admitted, however, that it is on the commercial balance sheet that other companies, both public and private, are judged.
The impact that the closure of Irish Steel would have on the Cork region which has been affected by the closure of Fords, Dunlops, Verolme Cork Dockyard and other industries will be taken fully into account when the Government take their decision about the future of the company.
Another vital ingredient in this complex series of problems is whether the Exchequer can actually afford to borrow and service another £24 million which is 1.5 per cent of PAYE revenue and £44,000 per worker in ISL on top of the £130,000 per worker already invested. In addition the Government have to consider many other demands for scarce Exchequer resources.
I hope my statement tonight convinced the Irish Steel workforce that their company is at a crossroads and that the reaction to recent proposals put to them by management is an important ingredient in any decision. I trust the House is convinced that we are examining every possible aspect of the case. The Government will be apprised of all the relevant facts including the contributions made in this debate. I hope that Deputies will address themselves to the real choices that are to be faced, rather than select only the evidence that favours one course or another.
There is nothing in my statement that would justify the suggestion by Deputy Ahern that in some sense blame is being put on the workers in this case. I have no doubt that the workers have made efforts in the past to contribute to the success of the company. Unfortunately, there are factors outside everybody's control which sometimes cause damage to a company and they are beyond the control of both workers and management.
Some time ago a former Coalition Minister described the Cork harbour industry as trivial and in the seclusion of his own constituency at election time criticised a Fianna Fáil Government for spending money foolishly on industries he described as trivial. He was sniffed out by a former war horse of the House, former Deputy Martin Corry, who flushed out the information. Strangely, that thinking of about 20 years ago seems to be prevalent among the Coalition Government. Tonight's debate on Irish Steel follows a number of other tough debates on the Cork scene in the past two years but one thing we do not want in Cork any more is a decision to make more workers redundant, particularly those employed in State industries.
While I accept the Minister's final comment that he is not putting blame on the workers although he did refer to high labour costs — I will refer to that later — the message he seemed to convey was that, unless the workers accept the terms of the redundancy offer made to them, there is no chance whatever for the future of Irish Steel. The Minister did not say, and this is very important, that if those redundancies are accepted with some revised terms, he will give a guarantee about the future of that industry. One thing we cannot afford in Cork is the loss of 650 jobs. I considered the debate important enough to be present in the House because for the last two years we have been concerned about the increase in unemployment in that city.
I would not be naive enough to blame the Government for the job losses that have occurred. I have already said that some of those losses were beyond the control of the Government. Those losses have had a very serious impact on the economic and social life of the harbour area, the city and county. Poverty is at a level not experienced since the fifties. Redundancy lump sums have long since run out and social welfare is now basic. However, the Government must accept some blame for the position in Cork. I cannot identify one job that was created by the Government task force set up last year. The contents of the report of the task force were never made known to the House. Did they make any reference to the future of Irish Steel or the prospects for the workers? The Minister responsible for the launching of that task force should be honest with the House and the people of Cork and tell us what was in the report. He should tell us why the report was concealed and locked in some backroom in the Department. Why was it locked away? What is in the report that he does not want us to know? What is in it that the people of Cork should not know? Was there a reference to the future of Irish Steel? Was there a forecast of what might happen to Irish Steel? Is there some more ominous news for Cork?
It was not part of the report at all.
May we have a copy of the report? I will only believe what is in the report when I see a copy of it. When the task force was launched I participated on a television programme with the Minister. Reference was made to the Ford closure and the Minister said that the Government would see to it that Fords would not walk away from Cork. That commitment was not honoured and replacement jobs were not provided.
I should like to refer to a leading article in the magazine, Business and Finance, published on 20 June 1985 in Volume 21 under the heading, “Steel Yourself Minister”. The article commenced by saying it was time to put Irish Steel out of their misery. It was very easy for a well-heeled safe journalist to write those words and advise the Minister to steel himself. I hope Deputy O'Sullivan read the article and brought it to the attention of his Labour colleagues in Government. I understand that all Labour Members received a copy of that article. If that is the type of advice the Government are taking on board we have a strong obligation to point to the other side of the coin.
It is easy to say it is time to put Irish Steel out of their misery but at what expense? Does the journalist who wrote the article have any concern for the 650 workers involved and the families depending on them? Does the journalist have any concern for the fact that those workers may have to meet big mortgage repayments and may have children at various stages of education? Those considerations were far removed from the cold hand of that person who was writing what the readers wanted to read in that magazine. That person is in the business of keeping the magazine afloat. A lot of misery will be created if that happens. I hope other considerations will apply.
When will the Government reach a decision on this matter? Deputy Ahern asked the Minister about the delay in the payment of equity. In the course of his speech the Minister admitted that there was some delay. He said there was some delay in the timing of the equity injections as compared to forecast, but he did not say why. In my opinion this is criminal. This industry has been having many problems and legislation was passed in this House, with the support of both sides, but red tape prevented that agreement from coming into force in time. That is disgraceful. If that has contributed to the costs of this company, then the Minister and the Government are responsible. The employment position in Cork is deteriorating. The Minister said the argument that 400 extra jobs could be lost if Irish Steel were to close is an exaggeration but I do not agree. I appeal to him to ensure that the Government decision is a positive one.
Redundancy has been used unfairly by some. It has been used as a carrot to get people to concede jobs, a concession they make but regret two or three years later, especially at a time like this when alternative jobs are so difficult to find. That redundancy money disappears very fast but there is another aspect which must be considered. Redundancy payments can cause additional problems because when social welfare benefits expire and people apply for assistance, the redundancy payments are taken into consideration. If a man is a spendthrift and spends his redundancy money that is fine, but if he is thrifty and saves, he will suffer. The Minister's colleague is aware of this, but I ask that something be done urgently about this problem.
I remember a night in this House a few short years ago when Deputy FitzGerald, the present Taoiseach, with a full gallery — a brilliant lobbying effort by his Kilkenny Deputies — discussed the Fieldcrest problem. We had a readymade solution to that problem but the then Opposition led by Deputy FitzGerald suggested we nationalise Fieldcrest. Fieldcrest were a private company but Irish Steel are a State company. Let this Taoiseach and his Ministers reflect on the stand they took then. If it was right to nationalise a private company then, let them do something for Irish Steel, a State owned company. Let the Labour Ministers remind them of that night when, to the cheers of a packed Fine Gael gallery, they rallied to the cause of the Fieldcrest workers. If there is any honesty left in the Taoiseach, let him remember that night when he made that move for narrow political gain.
I deliberately allowed the Minister to conclude his statement and was glad to hear him say he was prepared to consider the situation in Cork. This is very important because the social and economic considerations are great. Morale is low and cannot take another blow of this nature. The Minister referred to the problems affecting Irish Steel since the package last year. Let me go through them. He mentioned the sharp rise in ferrous scrap prices — they are completely outside the control of the company as he admitted — the continued depression in steel selling prices — also outside the control of the company — the high electricity costs relative to their competitors — again outside the control of the company, but not, I suggest, outside the control of the Government. Desperate situations require desperate remedies.
I welcome the natural resource, the gas find which we in Cork have had since the seventies. I understand there is a second find, and I welcome it too. I hope there will be more gas as well as oil finds. This generation has an obligation to use that resource to the benefit of the unemployed who are suffering. An Bord Gáis are making a profit, but I am not really concerned about profits which make this company appear to be amazingly viable. That resource must be used to provide Irish Steel with cheap fuel because the high costs are crippling the company.
The Minister also mentioned high labour costs. I would like comparisons between labour costs in the European steelyards and the Cork steelyard. If there is a discrepancy, I do not believe it is because of lack of effort on the part of the Cork workers. I am sure it is because of more modernised and mechanised operations in the European mills. In my opinion the investment in Irish Steel by successive Governments has been money well spent. If my memory serves me right, these workers have not had a pay increase for the past 18 months. That reflects a very responsible attitude. These workers are very concerned about the future and their approach is reasonable and rational.
I want to pay a tribute to the chairman of the company who has made a wonderful contribution to the industrial life of this country. He has tackled a very difficult problem here. Of course he is having difficulties but for the Minister to tell the unions that this is a matter for the board of Irish Steel was wrong because he knows he is the person with the clout. He is the person who can intervene because, as he said in his speech, there are other considerations, the social considerations and the special needs of the Cork area. In other words, this cannot be confined to the cold, calculated decisions boards make with certain statistical information before them.
I was interested to read that the absenteeism rate was as low as 8 per cent. I wish it were zero per cent or even 1 per cent, but compared with the absentee rate in other industries 8 per cent is quite low. Many of these workers come from the Cobh region and have to come to work by boat. I was not in political life 20 years ago when the bridge was being built, but many of these workers come from Cobh, Cork city, Passage West, Monkstown, Carrigaline, Ringaskiddy and the adjoining areas. Cork Deputies know many of the people working there and their first commitment is, and will continue to be, to Irish Steel. That means we all have an obligation to fight for the future of that company. But the Minister has to come clean and tell us if there is a future for this company. Are the Government prepared to make such a commitment? The Minister's statement was too vague and left too many questions unanswered.
The Minister says about redundancy that "provided certain strict criteria and some conditions are fulfilled it may be possible to obtain financial assistance from the Commission towards redundancy costs". He does not say what those-criteria and conditions are likely to be. He says he must emphasise that it is by no means certain that an application to the Government would be approved.
Debate adjourned.