Amendments Nos. 1, 2, 3 and 4 are related and may be discussed together by agreement. Is that satisfactory?
Nítrigin Éireann Teoranta Bill, 1987: Committee Stage.
SECTION 1.
I presume we will be able to vote on them separately?
Certainly.
I move Amendment No. 3:
In page 2, in the Table, line 19, after "£180,000,000", to insert "or the amount actually owed by the Company on 2nd November, 1987 whichever is the lesser".
NET do not owe £180 million but a lesser sum. Originally NET owed £180 million but that debt has been divided. The debt in respect of the capital works is being transferred to the new NET holding company — if you like, it is staying with NET — but the debt in respect of working capital is being transferred to IFI, the subsidiary, which is the operating company jointly owned by NET with 51 per cent and ICI with 49 per cent.
I do not know exactly the amount of the working capital debt but, obviously, in a company of this size it is fairly substantial. My understanding is that NET have not borrowed £180 million. If they need a State guarantee for their borrowings they certainly do not need it in respect of money which they have not borrowed. I propose that the figure of £180 million be put in as an alternative to the amount that they had actually borrowed up to 2 November and that whichever is the lesser of the two should be the one which is the limit. That is a sensible way of doing things. There is no need for this House to give NET permission to borrow money over and above what they have already borrowed.
It is a wider question as to whether they need to be given a State guarantee in respect of this borrowing. That point is being raised in some of the other amendments. The Minister in replying to the debate indicated that NET and the Government had been offered the money they needed to borrow without the requirement of a State guarantee but the conditions were considered to be unacceptable. The first thing was that it would cost about £120,000 a year more which on a borrowing of £30 million is not a very high premium to pay when one does not have to give a guarantee that the State will repay. It would have been reasonable for the company to pay £120,000 a year extra so that there would not have to be a State guarantee. The other condition which the banks apparently imposed was that they should have a mortgage on the gas contract. The gas contract is worth an enormous amount of money because under it gas must be sold to NET at a price far below the market price. The banks, in looking for a mortgage on the gas contract were looking for what was tantamount to a State guarantee.
The Minister did not give us details of that, or at all on this subject, until he was pressed here on Second Stage. I would like some information from the Minister now as to the details and the conditions under which money would have been available without a State guarantee. It is quite a serious matter for the State to give a guarantee to a commercial State company on their borrowings. Once the bank have a guarantee it means that the bank do not have to look in a critical fashion at whether or not they should lend money to a project. They do not have to appraise the project to see whether it is good or bad because they know they will be repaid with interest by the State whether or not the project is a success. The bank is not at risk.
In a sense, it is a gesture of little confidence in the project if a State guarantee has to be given or if the banks had to look for a mortgage on the gas contract. Looking for reassurances of that kind indicates that the banks do not feel very secure about the project. When a State and a company almost as large as a State are involved in a joint venture, that is a pretty good indication that it is a sound project.
Whatever about the political pressures involving our State in this, there is no doubt that ICI would not get involved unless they believed this was a reasonable project. They are putting some of their assets at risk in this joint venture and if it comes apart they will lose them. They are taking a risk and the State is taking a risk. Why are the banks not taking a risk too? We have got into very bad habits of giving State guarantees almost without thinking about it. It is now a normal process. People who have already got a State guarantee now look for more because the company are expanding etc., and nobody dwells on the fact that it is essentially an aberration that a State guarantee should have to be given at all in respect of a commercial project.
I understand that the board of NET were not told that a State guarantee was being sought. Why were they not told? Surely if a State guarantee was being sought to back the borrowings of a company the board of that company would be apprised of that fact. If the board did not know they needed a State guarantee and there was no need to tell them, why is the State guarantee being sought? That is a reasonable question.
I do not want to derail this project or to unilaterally and retroactively change the terms upon which finance is being made available to the project whether or not I believe it to be right. One must recognise that if people have entered into certain arrangements on the basis of a State guarantee if we come along and say: "Sorry, you have not got that guarantee", it would cause commercial problems. With this in mind my amendment simply says that they can have a guarantee on any money lent to the company up to the date before this Bill was introduced into this House but that additional money advanced to the company from that day on would have no guarantee.
That is a reasonable amendment. It strikes a reasonable balance between the rather more extreme position taken by Deputy Keating on his amendments where he would simply roll back the effect of this Bill altogether and give no guarantee, which is fine in theory but in practice, given that arrangements have been made in good faith, would create problems. There should not be any problem in giving a guarantee in respect of money in place now, but not in respect of money in place from 2 November on. That is the purport of my amendment.
In relation to my amendments the first thing to be said is that it is not right for this House to be bound by private arrangements entered into by the Minister in relation to guarantees. This is the sovereign Parliament of this country and this Bill is before us for consideration. We should not be circumscribed or inhibited from reacting to it in the way we see fit, based on our honest perceptions of what is right.
The essence of this problem is that the unilateral goodwill extended to this company over decades has simply been used up. The indebtedness of the company now is at the very least, of the order of £180 million. If one honestly believed that the money being sought would help to turn this arrangement around, it might be different, but nobody honestly accepts that. Nobody in his heart believes that in five years' time this company will be in a fundamentally different position from that in which it is now, that is, seeking to continue to exist on the basis of substantial handouts from the Exchequer. We would not be in favour of spending an extra £30 million even if it was available, in the light of other priorities now pressing on the Exchequer.
The Minister is seeking that money and I certainly do not intend to be bound by some sort of convention that it is a fait accompli. If I was that way inclined I would not bother coming in at all. The Minister should clarify that first. This should be a meaningful discussion. There might be a vote at the end of it and whatever happens on that occasion will then be the basis of the law as it will then become.
This is not a side show or a game of shadow boxing in which there is silent agreement that nevertheless the old way will go on. One of the comments Deputy Bruton made and with which I agree is that over the last number of years there has been brought about a feeling that there were large areas of commercial activity which could forever milk the State for funds. My view and the views of my colleagues is that that should not be the case, that such money is not available. By any reasonable commercial criteria this company have got a fair degree of largesse from the Exchequer and they have not performed. I know that is fairly brutal and hard but I am afraid that is the way the world is. I know many people who are suffering great hardship this morning because they have no jobs. They do not have jobs because the State is continuing to featherbed companies like this.
I know that this is not the normal talk of politicians. The normal convention would be for one to come in here and pay tributes right, left and centre to workers and management. I am sure that individual workers did their best but the ever decreasing number of taxpayers are being asked to foot the bill for another £30 million. The Minister did not in any part of his speech on Second Stage adduce any reason which would give any of us hope to believe that this is the last such request or that this money would be a catalyst for progress in the future. The first thing I want to establish is that we are in the business of making decisions and not simply in the business of a dumb side show that plays the game in respect of private arrangements already entered into. Certainly that is not the game I am in.
The second point I want to clarify is whether the Minister can tell us what the prospects are and to show us, not simply by rhetoric, on the basis of financial projections, market research and perhaps some form of business plan, presumably got together in the context of the joint venture, that there is a way out of this mess which would not involve the State in further requests for money in a few years time. We can see the pattern of indebtedness involved and it is very sad. I have no doubt that the management and the workers have done their very best in terms of trying to meet the requests that were put to them. Perhaps the problem is not so much the supply of this commodity but the actual demand, the changes taking place in the market and the capacity of other economies and areas of industrial activity to satisfy the demand that is there on a more cost effective and cost efficient basis.
There is one other question to which I want an answer and it is fundamental to this discussion. There is no point in us engaging in a debate here based on what I would call creative accountancy which is dependent on a phoney price structure for gas supplied to ICI via NET. I want to know publicly the precise cost of gas to the joint venture company, the precise dimension of subsidy applying to NET at this time and the full cost implications of that for the economy. There is no point in anyone pretending that ICI are going to pay a commercial price for gas and that, therefore, they are going to gild the NET lily if the price of the gas supplied to NET in the first instance incorporates a hidden subsidy from the taxpayer. I want to put that on the record and to get an answer to it because if that is the kind of creative financing that is involved, presenting sets of figures which essentially mask underlying patterns of hidden subsidy, it would be a disservice.
My amendment proposes that the sum of £180 million be reduced to £160 million. The reason I want this to happen is that I have not seen anywhere evidence to indicate that an additional £30 million is warranted. The Minister in his Second Stage speech said that when approving of the joint venture in January 1987 the Government decided that, if possible the additional medium-long term funding should be obtained from the banks on an unguaranteed basis, but that if the funding were not available on terms acceptable to the Minister for Industry and Commerce and the Minister for Finance the Government would introduce legislation to guarantee the required borrowings. I mentioned in passing during Second Stage whether that kind of indication was clear at the time when the unguaranteed funding was being sought and whether those who were being asked to provide unguaranteed funding knew that the State would come up with the guarantee if necessary.
The Minister want on to say that following this decision, discussions had taken place with a number of banks and while offers to provide the funding on an unguaranteed basis were received, the terms attaching thereto were not acceptable. I want to know why. I have no doubt that there were good reasons but I do not know what they are and I want to know what they are before being asked to commit the State to taking up and filling the vacuum which the banks apparently offered to do. Perhaps the terms they asked for were unacceptable. I want to know why and how. Is it because of the way government operates that we are too ready to run in with State guarantees and that perhaps we should have been tougher with ourselves. Of course, if that was the norm we would not be in the mess we are in the first place. I want to know what the criteria were and what terms the banks demanded. I am asking this in the public interest. The public have a right to know because they are being asked to pay the bill instead.
The Minister went on to say:
Consequently, the Government decided to introduce legislation to guarantee the initial borrowings required i.e. £30m. The banks were notified of the decision and, in anticipation of the introduction of this legislation, they provided the funding on terms acceptable to myself and the Minister for Finance. Medium and long term facilities of £30 million have been arranged on acceptable terms, replacing NET's existing short term borrowings and providing the company with a contingency margin during the initial, transitional period of the joint venture in what remain unpredictable market conditions.
That is to say that that money is to be used apparently for the contingency fund. Earlier in his speech the Minister said:
Successive legislative Acts had increased the Minister's power to guarantee NET's borrowings up to a limit of £150 million and this facility is currently fully utilised.
That £30 million differential, some of which I understand has already been committed, is to be the basis for a contingency margin during the initial transitional period of the joint venture. I would like to know precisely why the figure of £30 million was suggested. What are the economic forecasts on which that demand was based? Why was it £30 million as opposed to £20 million or £10 million, as I proposed in my amendment? Is this intended to fund a contingency fund for the transitional period and will it then either expire in some way, be refundable, if it is used up, or otherwise? Thirty million pounds is a great deal of money. I remember Governments getting into extremely serious hot water over being obliged, they felt, to reduce various social welfare entitlements by sums of £2 million and £3 million. I am not at all clear how it can be that a private company in the wake of already obtaining £150 million of direct funds plus various other forms of subsidies can convince the Government they need an extra £30 million. I want to know precisely why it is £30 million.
Is it in order for me to move my other amendments now or should the Minister come in and answer my questions?
We should deal with the other amendments.
If £180 million is the amount, which is essential, perhaps the Minister would tell us the underlying details and whether that figure will be the last such request and what guarantees in relation to performance are expected from the company in that respect or are there any such guarantees. The more one stands back from this the more audacious it is for any Minister to come in here and simply extend the hand for approval of this House for a sum of £30 million without putting before us one shred of evidence as to why the figure should be £30 million or indeed what precisely the money is to be used for other than saying that arrangements have been entered into. This House is not bound by any such arrangements in the context of considering this Bill and it would be a dereliction of duty for any one of us to feel circumscribed by arrangements entered into particularly when they are unexplained.
If the £180 million is essential, incorporating the contingency fund of £30 million, and if the joint venture is successful and there is a de facto reduction in their indebtedness, I would like to see that reflected in the debt to the Exchequer. That is what we are trying to achieve in amendment No. 2. The figure of £180 million is the maximum that is outstanding at any stage but if things improve — and I have my own views as to whether they will — the taxpayer will also benefit in view of the extraordinary patience which that species has extended to this company. If, during the next two or three years the sum reduces to £170 million or £160 million, I want a sliding downward scale of maxima to be applied to the indebtedness. Otherwise I suspect that any company which would have an open cheque to the value of £180 million would probably feel inclined to utilise that maximum potential of £180 million rather than be concerned about reducing it. All I am asking is not that they should be circumscribed in terms of their capacity to operate commercially but simply that if things improve that improvement be reflected in the indebtedness which that company has to the State. That is the reason I am suggesting amendment No. 2.
Amendment No. 4 in my name seeks to give further effect to that. It relates to the Table in the Bill. The desire is to ensure that the sliding scale, which we hope is downwards, will reflect itself in the company's indebtedness to the State. It does not seem to be unreasonable. We must bear in mind that this company has made a contribution to the economy as a very substantial employer and we do not want to be arbitrary in any way about the future of the company. Nobody wants to do that.
I wonder when, if ever, there comes a time when one has got to say: "I am sorry, enough is enough"; I am inclined to think it is now. In essence, for the purpose of opening up this discussion I would like to know what precise guarantees are in place in relation to the proposed expenditure of that extra money? What criteria is this sum based on? Is it based on a standard performance, a business plan, some market research or projections that are amenable to economic or political evaluation or is it simply some figure plucked out of the sky? I want precise details about the arrangements entered in vis-à-vis the offer from the banks to take up this. I want precise figures about the price of gas to NET and from NET to the joint venture company. I want reflected in the maximum indebtedness to the State an uppermost figure which reflects precisely the operational status of the company at any given time so that there may be some hope of reducing the indebtedness of NET in terms of the taxpayer.
We must always bear in mind that every time we give £1 of taxpayers' money to any company or enterprise we have by definition decided to give that to company A as opposed to company B. It is not a question of giving it or not giving but rather it is a question of how we use State resources. If this House has that kind of money available this morning there are many other areas where it could be used. The Minister must convince us that what he is proposing is essential, that this is the necessary figure and that it is based on a clear set of parameters relating to guarantees for performance in the future. I heard nothing of that in the Minister's Second Stage speech and I hope to hear it today. If not, we will be opposing the Bill outright as we have opposed it in principle up to now.
I propose to deal with all four amendments together. It should be pointed out that this legislation deals with the level of guarantees for bank borrowings as the Deputies have said. I thank them for their constructive approach to the debate. The debt of £160 million which is referred to in the Second Stage speech was the amount of bank borrowings remaining with NET on the setting up of the joint venture at the beginning of October.
£150 million.
A debt of £160 million referred to in the Second Stage speech was the amount of bank borrowings remaining with NET on the setting up of the joint venture at the beginning of October. NET had, of course, other liabilities, the most obvious being its liability for interest payments. It also had a liability to pay for gas delivered before the joint venture actually took place. Consequently, I should like to tell the House that by 2 November NET's combined bank borrowings and other liabilities were of the order of £168 million.
An additional hazard has now emerged for NET. Because of commercial confidentiality — which I know Deputies opposite will appreciate given the nature of business today — I cannot disclose the full details of the gas price. However, I should like to point out that NET will sell gas to IFI through a price formula which includes a component related to heavy fuel oil prices. Unfortunately, as Deputies are aware, this product is priced in United States' dollars and as the value of this currency falls it will reduce NET's income from gas sales. On the other hand, lower interest rates would reduce its financial charges in turn. In time such components of NET's business should balance themselves out.
The hazardous nature of its trade, as Deputies will appreciate, requires that NET be given financial leeway to give the joint venture time to achieve maximum efficiency. I must, therefore, reject amendments Nos. 1 and 3 seeking to limit the borrowing to £160 million or to the amount owed by NET on 2 November 1987.
In relation to amendment No. 2 which states:
In page 2, line 9, after "£180,000,000", to insert "or such lesser amounts as may at any time be owing by Nítrigin Éireann Teoranta".
and amendment No. 4, both from Deputy Keating, I support the sentiment behind the amendments. However, the Attorney General's Office pointed out to the Department of Industry and Commerce that the proposed amendments are impractical and quite unprecedented. To take away the flexibility which the upper limit setting of £180 million gives the company and to set lower limits, which then become maximum limits would mean that I would have to come back before the House at regular intervals to increase the level of State guarantee.
On Second Stage it was pointed out that NET had lost £34 million over the past 21 months. I hope that figure sinks in. It could not be expected that the joint venture would immediately turn that around. Consequently, it is quite obvious that NET will require additional facilities to take them through the next 12 to 18 months by which time it is hoped — and I know Deputies share this hope — NET's returns from gas sales and dividends will be sufficient to service the debts. I must point out that the joint venture is now up and running. The additional facilities being sought are in respect of guarantees from the holding company, which is charged with servicing NET's debts.
Unless we allow them scope for additional guaranteed borrowings, the bank's might immediately call in NET's unguaranteed borrowings and refuse to provide the additional facilities needed over the next year or so. In the real world that is a very real danger and in such a situation the company would have to seek alternative unguaranteed borrowings which most likely could only be obtained by means of a mortgage on their gas contract resulting in increased costs through higher interest charges. If such borrowings could not be organised, the Exchequer would have to provide facilities immediately to NET so as to allow them to service the debts which are there.
Deputies asked for specific information on the rates being charged by the banks. The Deputies asking those questions obviously know that such information is normally a confidential matter between the company and the particular bank. However, I take this opportunity to assure Deputies that the rates obtained are as good as those for comparable State companies and better than the rates for comparable private companies.
That stands to reason.
In view of the serious consequences which I have just outlined, I cannot accept any amendment which would effectively reduce the power of the Minister to give guarantees below the level sought which is £180 million. I have to repeat that to accept the amendments would mean higher bank charges for NET.
It stands to reason.
We have heard a good deal of criticism of the banks from all sides of the House, and to pay higher bank charges voluntarily is a route we decided not to go.
Perhaps the banks are not at risk.
If there was no offer from the banks we would be back almost immediately to the Dáil seeking direct cash assistance. I know this prospect is completely unacceptable to all Deputies. For that reason I have to reject the amendments as outlined.
The Minister did not reply to the question about the unacceptable demands made by the banks when they were offering the funds.
There are two reasons: the mortgage on the gas contract and the additional interest charges being sought by the banks.
Would that have been part of the price?
We took the view in a very sensible way that those two conditions, among others, were unacceptable.
This is a fundamental issue and there is no way around it from my point of view. There is no point in telling us that the bank rates are better than or comparable to those in the commercial sector, or that normally this is a matter of commercial confidentiality. This is not normal. We are not dealing with a private company which is dealing with its own affairs with the bank. We are dealing with public money. I have to press the Minister to try to obtain factual information on the essential issue of the price of gas. The Minister has hedged today. His Second Stage speech was more general. There are, apparently, elements in the pricing structure for gas which relate to the ongoing market price available, or perhaps prices in the world market — I do not know what the criteria are. It need not necessarily be a commercial price as there are hedges and safeguards built in which effectively mean that the price will escalate upwards, or downwards if the price generally does not suit the joint venture company or specifically ICI. The Minister has decided to give £30 million of taxpayers' money to this company. It is a guarantee which will be called in.
Therefore, it is needed.
It may be needed. I asked the Minister to demonstrate that £30 million was needed. The Minister has not done so. I asked specific questions which the Minister did not answer. He told us that the indebtedness of the company is £168 million, which is £18 million — unless I am misreading the speech — more than the facility which was extended on the last occasion this Bill came before the Dáil. Have NET the capacity to run up debts over and above the indebtedness facilitated by the arrangements entered into legally in this House? Have they to get agreement from the Department to do that? If so, where and when does the Minister interpose himself in this regard? All I am asking for is information which I believe Irish citizens are entitled to when the Minister decides to spend their money. I want to know the precise degree of public subsidy incorporated into the price of gas which is being sold on to ICI. If we do not have that information, we cannot make choices. It is not a matter of private commercial interest, but of public right to know. I hold this view very strongly.
The Minister mentioned that the amendments would be impracticable and unprecedented. The fact that they are unprecedented does not cause me any problem. There are many things in this House which are unprecedented which I would not mind happening for the good of the House. I am disappointed by the Minister's reaction. He said the lowering of the limits could not be accepted because it would mean the Minister would have come back to the House at regular intervals. This seems to indicate that forever and a day this company will be obliged to live off the Exchequer in this way. If things improve is it not reasonable for us to try to pull back a little on our exposure? The best way to do that is to introduce an amendment. I do not care whether or not this amendment is technically correct. I am quite happy to discuss the technical details with the Minister. I do not claim to be a draftsman. I have no staff to do that work; nor do I see it as my job. The Minister concurs with the spirit of my amendment.
The Minister also said that the banks would call in their guarantees and would charge additional interest rates, and so on. The banks do many things for good commercial reasons. It worries me slightly that there is a soft under-belly about public expenditure and public guarantees. Perhaps the banks do this because they know there is a great deal of commercial risk out there. Perhaps their suggestions about what they would have to do should alert us to the type of guarantees we are giving without having the capacity to impact on the company in this way. Perhaps we should not be entering into those guarantees and the banks' attitude should warn us off.
I know the Minister said "no" to all the amendments although he said graciously that he was sympathetic to the spirit of two of my amendments. I want to know the gas price. I am not concerned about the detail of the amendment and I am quite happy to have it redrafted but it is reasonable that we should insist that there be a reduction of exposure as the years go by.
The question of commercial confidentiality does not arise in this case because we are not dealing with private commercial practice, we are dealing with extremely large sums of public money pursuant to having already spent large sums during the years. I have read carefully every debate on the matter in this House since the company was set up and the one thing that every Minister who introduced such Bills said is that there is going to be a better tomorrow, that there is light at the end of the tunnel but then they will later say that something went wrong. It would not be in order to talk about the Marino Point plant except to say that that was not just a red light but a whole battery of red lights. We are now talking about another large hand out of a general rounded nature without reference to any guarantees or details of the way the company should perform and without any reference to whether we will ever get a bob back. That is not good enough and I want some answers.
I wish to put some points to the Minister. First, did the NET board approve the seeking of a State guarantee? Secondly, did all of the banks, or just some of them, who offered unguaranteed funds seek a mortgage on the gas contract? In relation to that question, how many offers of unguaranteed funds were made available to the Minister as an alternative to giving a State guarantee in this case? Thirdly, the Minister makes the excuse that NET face some hazards in respect of which they need this guarantee. They owe only £168 million at present but the Minister feels they may owe some more——
£12 million more.
——because of the fall in the dollar which would in turn lead to a fall in the price received by NET for the gas under the formula. Is it not the case that if NET holdings are receiving less because of a fall in the price of gas, conversely Irish Fertiliser Industries, in which NET have a shareholding, are paying less for their gas under the same formula and that therefore the money is simply being transferred from one pocket to another. As NET have a 51 per cent shareholding in Irish Fertiliser Industries they will make up, in the form of dividends, any losses they suffer as a result of the fall in the price they charge to Irish Fertiliser Industries for gas. Fourthly, is it not vital that this House knows the pricing formula for the gas? Otherwise we do not know what we are putting at risk. We are not talking about a guarantee to a fertiliser producing company, we are talking about giving a State guarantee to a company whose sole business will be buying and selling gas. They will have one business and one business only, the management of a single contract, buying and selling gas.
And paying interest.
That is understood. They will be managing a debt and managing a gas contract.
That sounds much nicer.
We accept then that they have two functions, managing a debt and managing a gas contract. It seems that their ability to manage the debt depends on the basis on which they manage the gas contract. Unless we know the nature of the gas contract we have not got the faintest idea about their ability to manage their debt and therefore we do not know what we are giving in terms of a guarantee. This has nothing to do with NET, Arklow or Marino Point.
The Deputy seems to have a guilty look every time he looks over here.
No, some of those people are employed in Dublin, too.
At the end of the day it does mean something to both of those places.
Not directly.
It means a lot.
The Deputy said Deputy Bruton has an accusatory look.
He has a guilty conscience because he knows as much about it as the Minister opposite knows.
How will one know whether it is safe to give a carte blanche or a blank cheque that the State will pay up if NET default on their loan when the only reason they could default would be if the price of gas went in one direction while the rate of interest went in another and there was a divergence between the two, with the company unable to bridge the gap. Without knowing what the gas formula will be there is a problem in deciding whether it is likely to track interest rates.
It is based on oil prices.
Yes, we all know that. The Minister is being a little disingenuous in describing why he could not give this information by saying it is because of the hazardous nature of the trade and the commercial confidentiality. I cannot remember his exact words. The dogs in the street know pretty well what it is about in general terms and I cannot see why the House should not be told in precise terms as it is the House that is being asked to give the guarantee.
I suggest an alternative. If the Minister is unhappy with the idea proposed in my amendment, that the guarantee to NET holdings, which is not the fertiliser company; it is simply the holder of the debt which is now separated from the fertiliser company, should be limited to £168 million which is the amount outstanding at the moment, would he be prepared to accept an amendment on the terms that we could give 100 per cent guarantee in relation to £168 million but that in respect of any money lent by the banks over and above £168 million the guarantee shall be, let us say, 80 per cent so that for every £ they lend they will have a guarantee that they will be paid back 80p. In that way, only 20p in the £ would be at risk. It is quite normal when a company go into liquidation that creditors are paid 80p in the £, 20p in the £ or 15p in the £. In this case would it not be reasonable to say that there should be a State guarantee in respect of 80p in the £ on all borrowings between £168 million, which is the present level of borrowing, and £180 million which is the amount being provided for in the Bill? In that way, we would still be giving a State guarantee but on 80 per cent.
I will put another possibility to the Minister and I may wish to raise this by way of a formal amendment on Report Stage. It is everybody's wish that this arrangement should succeed. One must accept that IFI and NET are, to use the Minister's words, in a hazardous trade. Would it not be sensible to say that there should be a State guarantee up to 1992 of £180 million but that after that the extent of the State guarantee to NET holdings shall revert back to the limit of £150 million? In other words, give the company five years or four and a half years with £180 million of a limit, but at the end of that period the matter must be reviewed with a view to seeing whether they can revert back to £150 million or the House should be asked again to extend the higher £180 million limit.
There is another point I would like to make. It is very important that NET holdings have reasonable information on the operation of Irish Fertiliser Industries which, after all, will be the source of their income, either in the form of the contract money for the gas or, in the long run, dividends. If NET is to operate effectively as a holding company in respect of IFI it needs such reasonable information. The employees of IFI are not represented on the board of IFI; they are represented only on the board of NET holdings, the holding company but if employee shareholding and employee representation is to have any value there must be some information. It would appear that there is a need to ensure that information is provided on a bi-monthly basis to NET holdings by Irish Fertiliser Industries on the operations of the company in regard to its plans or what percentage of capacity they are operating at over the period; in regard to finance or its budgets in line with forecasts; if there are forecasts in regard to finance, are they adhering to them and what marketing strategy is being followed.
I objected on Second Stage to the idea of worker directors being involved in day-to-day type board operations where there could be difficult decisions to be taken, decisions of an immediate character affecting management strategy and industrial relations, for example. That is not going to happen now because that will be a matter for IFI and not NET. It would not be unreasonable that the Minister should look to ensure that Irish Fertiliser Industries supplies its directors on the NET holding company plus the employee representatives with regular information. Both would benefit, as would the public, from regular bi-monthly information being made available to that board on the operations of the company from a physical point of view — capacity, usage and so forth; the operations of the company from a finance point of view — ability to keep its financing within limits and the marketing strategy being pursued by the company. After all, the extent of the guarantee and its safety depends in good measure on the success of the operations of Irish Fertiliser Industries. Therefore, information needs to be given to the holding company which is responsible for the debt which it needs Irish Fertiliser Industries to help it get rid of in the way Irish Fertiliser Industries is performing, and that would have the additional benefit of making information available to the worker directors on a reasonable basis.
I have said I believe that worker directors should be represented in the form as operated in Germany where there is a supervisory board on which they are represented and an operating board on which they are not represented. Operating decisions are not interfered with, do not become political in the sense of being political in industrial relations terms, but that broad oversight is something in which worker directors do participate. I would argue that the provision of this type of information to the holding company would strike the right balance between the conflicting demands in this area.
I want to make a brief comment on the gas contract. This contract was arrived at in the same manner as any commercial deal. Instead of questioning the ability of NET to manage its affairs, the company should be congratulated on negotiating the deal which it did in this regard.
A major problem, and a major contributing factor to the overall difficulties experienced by Nítrigin Éireann over the years, has been that this company has always and at all stages of its existence been under-capitalised. Therefore it had no option but to repeatedly come forward, cap in hand, for financial assistance. Invariably the level of assistance that was forthcoming was of bare baleout proportions. Any reduction in the amount of the guarantee proposed by the Minister would be a continuation of this undesirable and commercially obnoxious pattern which prevailed in the past. I commend the Minister for having rejected out of hand any such suggestion. Guarantees sought by the Opposition benches are quite ludicrous to anyone with the slightest knowledge of commercial activity particularly in the general commercial situation in the fertiliser industry. There is now a new found confidence in this revamped company, in the management, in its production ability, in its marketing ability and in its skilled workforce. It ill becomes anyone to knock or in any way abuse or inhibit the future of this Irish company.
I just want to clarify one point. Giving a State guarantee does not solve the capitalisation problems of a company. It enables it to borrow more, but that does not capitalise it.
It is the soft touch approach.
Equity is the only thing that can be used to capitalise a company.
What we are faced with in this Bill is the problem faced by the Government some time ago as to whether to continue this company as a company or to close it down. At that stage the previous Government had decided on the course the present Government are taking; in other words, to discuss with another company a joint venture in order to maximise the outlets for its produce, diversifying the type and range of goods it was to sell on the international market, because the company it was joining up with had outlets throughout the world, particularly in the United Kingdom and in the EC. That decision was made and accepted by the previous Government and apparently by the present Government.
The fact is that we have, as I see it in this Bill, a company who had in the meantime debts of £180 million which was £30 million above that which the State had guaranteed. This Bill today brings up the guarantee to the level of the debts of that company. We have it in the Minister's speech when he says that these debts now stand at £160 million following the transfer to IFI of about £20 million in debts in respect of working capital. That is £180 million of debts and, therefore, in the new situation the Government——
It is £160 million.
Look at the Minister's speech.
It has gone to IFI. It is not guaranteed.
He says they are debts. That is part of the working capital. The £20 million is passed down as part of the working capital. It is still debt that has been passed down.
It is not debt of NET.
It was debt that NET had picked up before it joined up——
That is right.
That is the point I wish to make. Therefore, it seems reasonable and natural that a company coming into a new situation would not simply accept a debt being passed on to it.
It is part of the deal.
It may be part of the deal but I am sure they want some guarantees to be made. We want to see these new arrangements being made but information has been sought on both sides of the House, which is reasonable. We should get down to the point where we say if we are for what is being attempted in this Bill, in other words, the continuation in existence of a company which have seen difficulties, certainly not of the making of the workforce. They have been the greatest sufferers in all this, having being decreased from almost 1,600 to less than 700 at present. The effort has been made on that side.
These new arrangements are being made to help the company to exist and, it is hoped, prosper, which is why my party are giving support to the Bill. They gave support in the past to arrangements which would have been very similar. The only quibble from other Members is how the arrangements have been arrived at. I see very little difference in the present arrangements from those that would have prevailed if my party had been in government.
I stressed on Second Stage that the new arrangements have reduced the influence of worker directors in the new set-up and have hived them off on to the holding company so that they will not know what is going on in the IFI company. I made then what I would regard as a serious charge, backed by a letter from one of the directors, but a reply was not given because there was not time. I should have liked to have received a reply which was guaranteed by the Minister at the conclusion of the Second Stage debate. The charge is that the facilities, etc. of the worker directors have been reduced and that they have been excluded from some of the meetings which discussed very important matters of finance with the board of NET.
We were in support of this legislation in the past. The company have debts of £180 million and the Minister is coming in to cover that situation. In the end, the position has not changed over the past year or year and a half.
I find myself in sympathy with the amendments put forward by Deputies Bruton and Keating and with the arguments they have made in this case, but possibly for different reasons. Here we have a deal involving ICI, one of the largest multinationals in the world, certainly in the chemical business. They are involved to the extent of 49 per cent in the IFI operation. At this stage we are asking the Government, who have far higher debts and far less creditability with banks than ICI, to give a 100 per cent guarantee for another £30 million borrowing, but ICI are getting a 49 per cent share of a trading company with no debts. IFI are starting up in business with no debts hanging over them. If NET had initially been in that position they would now be very profitable, having had somebody else responsible for their debts. ICI make no contribution whatsoever; they do not have to invest a penny.
I understand that the whole idea of privatisation or semi-privatisation — and this is the beginning of other processes which the Government have in mind — was to save the Government or the State from having to put money into a venture. Here private enterprise are being brought in on a joint venture but they do not have to put in any money. Now we are giving a guarantee for £30 million borrowing and we do not ask ICI even to go in on a joint venture on that borrowing. As Deputy Bruton has said, if the Minister believes that the £30 million is essential and that we must have £180 million of borrowing, it should not be guaranteed just to 80p in the pound. Following that line, I ask the Minister if he would consider guaranteeing it up to 50p in the pound and ask the ICI in a joint venture to guarantee the other 50p. That would be most acceptable to the banks and it should be acceptable to ICI. After all, they have not been asked to do anything else. They are simply asked to go in on a joint venture with a guarantee for the extra £30 million, if it is essential. We were told that a great deal was done in getting ICI involved here because presumably the advantage from them is their sales expertise and their marketing in Europe and probably other parts of the world, of which the Minister is well aware.
Richardson's are quite happy with the arrangements made so far because under them they cannot lose. The worst that could happen would be that they might not gain very much. They might gain a lot if things go well, ensuring an enormous profit, but if things go badly they might just not make a profit. In that situation the Government are in a very strong position to tell them that NET, the holding company at the top, need further borrowings of £30 million, that the Government are prepared to back that 50 per cent but would ask ICI to back the other 50 per cent. I cannot see anything wrong with that arrangment. It is an excellent suggestion to put to ICI. Deputy Bruton might have had that in mind although he did not say so, but an arrangement of that nature would be the best commercial arrangement. It would be a proper bargaining position to take up.
I do not understand the need for a joint venture at all. If one is going to throw another £30 million in, one might as well have thrown the money into NET in the first place and made a separate arrangement for another holding company to be involved and to take over the debt. Once the debt has been taken away, NET could manage fine. It is reasonable that ICI should be involved in a simple guarantee to the bank of £30 million. Deputy Bruton's excellent suggestion could help enormously with regard to industrial relations. This was to ensure that IFI make bi-monthly returns of information to NET, the holding company, on the whole operation, marketing and so forth. He made the point that the holding company would need this information if they were going to manage the debt and gas prices. It would also help the new company in the industrial area. I am very well aware that the worker directors who were elected were very upset, fearing that having been moved upstairs they would have no idea of what was going on down below. The information we are talking of would help NET in managing its affairs. It would help, too, in providing a role for the worker directors that would help employees in IFI. I support that idea.
The Deputies opposite raised a large number of issues and I will try to deal with them as systematically as I can in the time available to me. Questions were asked about whether the sum of £180 million is needed. To take up the point which was made by Deputy Keating, there is no question of hand-outs under any circumstances. Most people would freely admit that the tenure of the Government's economic policy has been to be extremely economical with State funds. That can be seen clearly from the debate on the Estimates and from other financial debates. The Deputy can take it that our approach to this matter is solely on the basis that we are not interested in giving one penny of State money to anybody beyond what has to be given. This is consistent with State policy.
The reason we have to make this extra £30 million available is that the State was faced by a company which had debts of £150 million. I have great respect for the Deputies opposite and particularly for those who have contributed to this debate but in listening to their contributions it was as if we were starting afresh and were asked to enter into a joint venture with a multinational company, they getting x and we getting y. That was not the option as the Deputies must be aware. The reality is that we were faced by a company in serious financial difficulty, which had a workforce of between 700 and 800 employees depending on the day one took. It was building up substantial losses on a daily basis and had lost £34 million over a 21 month period.
We could not and did not start from scratch. If we had been able to do so, we would have done a different deal but the most important point to grasp from this debate is that we could not start from scratch.
I am in some difficulty about what the Minister of State calls debts and what he calls borrowings. We were told by the Minister last week that the borrowings amounted to £150 million and that the debts stood at £180 million.
The authorised figure for NET was £150 million.
That is for the borrowings.
That was for the borrowings fully guaranteed by the State. That figure has now risen to £168 million and it is increasing at the rate of £1.5 million a month. What I want the Deputies to realise is that the amount above £150 million was not formally guaranteed by the State. This State company was running up debts of £1.5 million per month. Following the advice we received from our corporate advisers we decided that the correct course of action was to impose a limit of £180 million. I can tell the House that that figure of £180 million will be reached in a few short months. Of course, the question arises as to how we handle that extra sum of £30 million.
What is going to happen then?
I have been asked to explain the difference between the £150 million and the £180 million and what I am trying to say is that the difference is due to the rolling losses of NET which is now the holding company. The money is due. The figure of £180 million is an upper limit and will be reached very shortly.
It has been reached already.
The amendments which have been tabled which seek to make the figure £160 million would not deal with the problem.
What guarantees do we have that you will not come into this House in either four or five months time to point out that NET has overspent its existing guarantee and that we need to put in more money?
Let me answer first the questions the Deputy raised in his earlier contribution and if there are additional questions I will return to them later. I am quite happy to engage in crossfire but if we do so I do not know how far we will get. I am trying to explain to the House that we received advice from our corporate advisers. The alternative to putting together a deal like the one which was put together was probably the end of NET and the loss of hundreds of jobs. In every commercial deal somebody can say——
You were offered money on an unguaranteed basis.
——you could have got this portion differentlty but it is important to point out as strongly as possible that without this deal with the ICI the future of NET was in grave doubt.
But you did have options.
We did have options. The Deputy is now moving to his second question but I ask him to bear with me while I deal with his first question which was whether we need the £180 million. I am saying to the House that that sum is needed because we are on the point of reaching it.
It is already spent.
I have been advised that it will take about 12 months. At present the figure stands at £168 million. Unless Deputy Bruton knows something about oil prices and interest rates that I do not know, the figure is likely to keep going up. That is why we picked a figure of £180 million and not £160 million. In fairness, most of the amendments which have been tabled do not deal with bank guarantees but seek to reduce the figure to £160 million. I am saying that if we set the figure at £160 million we will be back in here like a shot because the present borrowings of NET have gone up to £168 million.
On a point of clarification, most of the amendments which have been tabled seek to ensure that the figure does not go sky high.
What does the Deputy mean when he says that the amendments which have been tabled seek to ensure that the figure does not go sky high?
If there is a reduction over a period of time, it should be reflected in the guarantees. Deputy Kavanagh's point has not been addressed.
As I have said, the amendments seek to reduce the level of State guarantee from £180 million to £160 million.
Over a period of time.
Some of them seek to do it immediately.
You said most of them seek to do it but let me clarify the point about the debt——
I am trying to deal with the key issues in a systematic way. The first question which was asked was whether we need the £180 million. I have indicated to the House how this figure has arisen and why we need it.
Because the boys have it spent.
The position is that NET has been in difficulties for some time. It has lost £34 million in 21 months. It does not help to label that money as a State hand-out or as a soft touch. The company employs 700 people and we have been trying to come to grips with the problems it is facing. An opportunity arose for us to do a deal and we grabbed it. It would be pointless of us to pin the figure at £160 million.
I would like to stress that we received advice from our professional advisers on this complex deal. All the banks wanted a mortgage on the gas contract but we were not favourably disposed to giving such a guarantee. They also wanted to impose additional interest charges and quite frankly we were not interested in that either. Therefore, the Deputies opposite will have to consider whether they are in fact saying to the Government that we should have paid the extra interest from taxpayers' funds instead of giving a guarantee? The same could apply to most State companies at present. We could now take the view that we pay much higher interest charges and release them as a State debt and State borrowing. It is a much broader question than the one which applies to NET. I have a lot of sympathy with what the Deputies have said on the question of State guarantees. When I sat on the Opposition benches I was very vocal about the need for reducing the amount of State funds involved and exposed.
Here is your first chance.
I can recall a famous Irish Shipping incident — probably Deputy Bruton and Deputy Mitchell were Ministers at the time — when I was trying to convince them to reduce State exposure in certain areas. If I were starting with a clean sheet I would probably construct the company along the lines Deputy Bruton and Deputy Keating want. Certainly that would be my personal view, but we did not start with a clean sheet and the essence of commerce and business is that you have to play the ball the way it lies and the way the ball lay in this case was that we were faced with dire alternatives for NET——
May I ask the Minister a question?
I am trying to deal with questions that were already asked.
Can he explain the nature of the mortgage on the gas contract that was sought?
No, I feel I cannot do that. The commercial dealings in that whole regard added up to a demand for a mortgage on the gas contract and additional interest charges.
What does it mean?
With our professional advisers we took the view that that was not acceptable.
Was it interest on the borrowings?
A number of questions have been raised by Deputies. Am I to consider the ones they are asking now or the ones they asked earlier?
I suggest that the Minister be allowed to reply to some of the queries and if Deputies have questions later I will allow them.
Excellent questions were asked and I am trying to deal with them as quickly as I can. First, the extra money was needed because we were heading for that limit anyway. That is the bottom line. One could argue that we could have got it from the banks, or supported by the State. We took the view that what the banks were seeking did not make sense. Therefore, we went the other road. That is a matter of judgment and we made that judgment with commercial advice. Deputies opposite are entitled to take an alternative view. Perhaps no two people in the same deal would come up with the same conclusions.
Deputy Bruton asked about an employee share scheme. The shareholders' agreement provides that NET and ICI will meet to discuss the possibility of introducing an employee share scheme if this is thought beneficial. That is part of the shareholders' agreement; so we will ensure that that happens.
A point was raised about the role of NET once their manufacturing role has shifted to IFI and so on. The holding company will get information from IFI on a regular basis. Deputy Bruton talked of the role of NET as being just that of dealing with the gas and managing the debt and that is true, but the third role is to monitor IFI. In doing that, obviously all the directors of NET will have a full role.
I dealt with the point about all the major commercial banks being approached in regard to the guarantee and all of them giving the same answer.
Deputy Bruton was interested in the question of the board knowing about the medium term facilities put in place for NET, that is, the extra £30 million referred to, were approved by the NET board. The terms are that the facilities will be guaranteed as soon as is practicable, but they were approved by the NET board.
Deputy Bruton talked about the lower gas prices, the interaction of that and the additional dividend from the fertiliser company, IFI, through NET and whether they will get a dividend in that regard. If there were lower gas prices that would almost certainly mean lower fertiliser prices because gas is one of the raw materials involved. Therefore, the fertiliser prices would be reduced and that would reduce the dividend coming from IFI to NET. In any event, the dividends come much later than the monthly gas payments and for that reason would cause a considerable cash flow. To an extent it is a seesaw in that it is linked up with the price of both the gas and the fertiliser.
We got advice on the £180 million figure from professional corporate advisers who are very highly respected in the financial area. We have taken that advice as well as our own view of the matter. The formal permission and agreement of the Minister for Finance has to be sought for increased borrowings in this company or in any semi-State company. If the situation improves suddenly, let me say without really diverting, we hope that IFI, who are now a NET and ICI joint venture, will succeed quickly, but it is unrealistic to expect them to make a return in the first few months sufficient to head off this £180 million which is needed. However, we hope, as I know Deputies present do, that after 12 months if not sooner they will start to generate dividends of such a nature to NET that the borrowing situation in NET will improve considerably.
I know Deputy Keating is concerned that somehow they have now a blank cheque to run up debts back to the £180 million figure when they might not need to. That cannot happen because the Minister for Finance has to give approval for that, and I doubt whether any Minister for Finance, even if he wanted to, would be able to authorise that type of increased borrowing.
The Minister for Finance has to give approval for what?
The £180 million. Deputy Keating is concerned that, if NET's situation improves because of better trading at IFI and that results in bigger dividends to NET who therefore improve and do not need State borrowing, they can go on borrowing under this legislation. I am telling the House that they cannot——
They could lend it to somebody else and make a profit.
They could what?
Let me explain. Because it is State guaranteed they are paying a lower rate of interest and they could lend it to somebody else if they wanted to rather than use it to reduce their own debt.
I am surprised at a former Minister for Finance taking that view.
In theory they could.
Does the Deputy mean to tell me that a State company who do not need borrowing for purposes of their own company could without the permission of the Minister for Finance lend their money to a third party?
That is what I want to know.
As a former Finance Minister could the Deputy see that arising?
Since the Minister is asking me questions I will answer them.
(Interruptions.)
I wish to be advised how any Minister for Finance would allow a State company to lend on funds they did not need to a third party.
I was asking the Minister what the nature of the control of the Minister for Finance is on the level of borrowing.
He has to give permission.
It seems to me that if a company have a choice of borrowing on the back of a guarantee, or borrowing without a guarantee, they would always opt to use the guarantee and continue to use it because the rate of interest at which they would borrow with a guarantee would be much lower than if they were to borrow otherwise. Therefore, the company will have a continuing interest to use their guarantee to the full because if once they let their usage of the guarantee come back down and the Minister for Finance gets to know about it, they will not be able to put it back up again. There is always a tendency for companies to want to use the guarantee to the full.
They have to get permission.
Only if it is brought down in the first place. That is why I am asking the Minister for more information on how the situation is to be monitored in order to reduce the borrowing backed by guarantee, if possible.
The Minister for Finance will not allow the company to onlend to a third company in some fancy financial deal.
That was a facetious remark. In theory they could.
We will take it on that basis. They need the money now and for some months to come — I cannot put a date on it — but we hope the success of IFI as an international company will bring dividends to NET and that the situation described by the Deputies will come about where they will not need the State guarantee. That is exactly what we want to bring about. There are many State companies with State guarantees. When their debts come down and they do not require all the funds, they are not allowed to increase them. The company would have to give a reason for wanting the additional funds. The Minister for Finance would have to give his approval.
Once it goes up, it does not ever come down.
If IFI are successful——
These companies do not rush to tell anyone they have been able to reduce their borrowing or indebtedness because if they did so their flexibility would be reduced.
There is no point in placing a limit now which would be surpassed in a couple of months. It is a matter of Judgment. We have picked a figure which makes sense, having taken professional advice on the matter. As that figure comes down the approval of the Minister for Finance will be required to let it go up again. He will not give that approval lightly. The House will have a chance to debate NET accounts in the future. IFI accounts will be incorporated in the accounts of NET, which will be available to Members of the House.
They are not debated.
No doubt the Deputy will be here next time to debate them.
(Interruptions.)
The Minister is replying. If Deputies have questions, I will allow them later.
Will the activities of IFI and NET be looked at by the Joint Committee on Commercial State-Sponsored Bodies?
NET is not on the list of such companies at present, but it could be included. It is certainly something worth pursuing. Regarding Deputy Mac Giolla's point about ICI and the level of State investment, it is not true to say that ICI have no involvement. The factories from the Richardson's group have been included. Secondly, ICI will have to carry a share of the borrowings undertaken by IFI. Thirdly, 75 per cent of the profits will accrue to the State. ICI have given a bit. ICI were simply not interested in taking over £180 million worth of borrowings to bail out a company. They were interested in a joint venture where the company would start comparatively fresh. In theory one could say that ICI as a major multinational should carry the can but that does not make sense in the commercial world. ICI were not interested in that kind of proposition and would not have become involved in the joint venture on that basis. The alternative was probably the escalation of the £34 million loss incurred in the past 21 months, leading to movement by the banks and the end of NET as we know it.
We are quite fortunate to have been able to team up with one of the largest companies in the world with markets far beyond what we could ever dream of approaching. It is an exciting, fresh beginning for Irish Fertiliser Industries and its employees. ICI were not prepared to buy the old problems of the outgoing company. Why should any commercial undertaking do that? The old problem had to be put in a box called NET and kept there. The interest on the debt will be serviced by the gas price and by the dividends, which are considerable, from IFI to NET.
There is an excitement about getting a fresh beginning for all those workers in what can be a very fine company. It is unfair to suggest that as well as this fresh beginning we could also have hived off £160 million on the party who wanted to get in on the new business with us. The reality is that ICI were not interested in that proposition.
The previous Government were asked many times about the price of gas, but I do not recall any Minister giving that information. BGE have a number of customers and they do not reveal the price at which they deal. They negotiate contracts with various companies. BGE and the Government have taken the view that this is commercial information which should not be given out for public consumption. The price is commercial and there is no loss to the State.
Will the Minister tell us the price?
It would not be appropriate. I have heard both Deputy Bruton and Deputy Keating speaking many times about the need for commercial companies to be given their head and allowed to behave commercially. It would not be a good start to give out the information on which a commercial deal is being put together.
Normal commercial companies do not get State guarantees.
All we are asking is the amount of the guarantee. I am quite certain that the prices are known.
Progress reported; Committee to sit again.
Sitting suspended at 1.30 p.m. and resumed at 2.30 p.m.