When I moved the adjournment of this debate I was endeavouring to stitch into the record of the House the importance of this industry to my constituency and, in particular, my county. This debate affords me an opportunity to outline the way forward, as I see it, for the board given the new powers being granted them and which have been welcomed by all those involved with the board.
I have some comments which the Minister might consider between now and the preparation of amendments for Committee Stage. For example, the duties of the board were set out in the provisions of section 17 of the 1946 Act and their powers in section 20, the powers and duties taken together being described as their functions. The view has been advanced that the provisions of section 20 are controlled by those of section 17 of the Principal Act for example, the power of the board to erect buildings and enter into contracts are limited to the core business of peat and peat products. One of the provisions of this Bill is to extend the remit of the board with regard to engineering and building works beyond that of merely peat and peat products. This is being done by the insertion of a new section 20 (i) in the 1946 Act. I content that, at the same time, the provisions of section 17 of the Principal Act should be extended to make it clear that the remit of the board is extended under the provisions of this Bill.
During the drafting stages of this Bill I understand that Bord na Móna made a submission to the Department of Energy requesting an addition to section 17 of the 1946 Act in the following terms: "to allow it to do all such other things which, in the opinion of the board, are calculated to facilitate the proper carrying on of the business of the board". That wording was taken directly from section 13 of the CIE Transport Act, 1950. I note that that proposal is not included in the provisions of this Bill. I should like the Minister to take another look at it and ascertain whether that would not allow the board the necessary flexibility which is the intent of this Bill.
The provisions of section 3 deal with the possible establishment of sub-boards in the future. I should like to make a few comments about those provisions as they stand. Under the provisions of section 6 of the Turf Development Act, 1946 — the Principal Act — the board have power already to delegate functions to employees. It is to be noted that, in the case of subsidiary companies formed by CIE under the provisions of the Transport (Re-Organisation of CIE) Act, 1986 employees have been appointed directors of those sub-boards. Therefore, it is fair to ask the question why the same facility is not being made available under the provisions of this Bill allowing for the possible appointment of employees as directors of sub-boards, as is the case with the appointment of worker-directors to the main board. The original proposals of Bord na Móna — seeking the amendment of the 1946 Act which culminated in the publication of this Bill — proposed sub-committees rather than sub-boards. The trade union movement has been concerned that the introduction of sub-boards may facilitate not merely the division of Bord na Móna into three separate operations under the main board but that the board could be divided into three separate ones. Given the nature and potential of the business — as they embark on their rationalisation programme — that would be a retrograde step. It was a recommendation of the internal plan of Bord na Móna that any rationalisation should take place under the umbrella of the main board rather than have three or four separate entities at some time in the future. Therefore, the establishment of sub-boards must be examined very carefully. One would have thought that the delegation of functions involved could have been done adequately and effectively through present management structures. There is the possibility that this could lead to a costly bureaucratic exercise with a new layer of top managerial posts not warranted. While I do not expect the Minister to delete the provision we should hear from him on Committee Stage in more detail precisely what is the intention behind the proposed establishment of sub-boards and to what extent it is intended to delegate powers to them. It must be remembered that there will be major policy decisions taken in the near future.
When drafting this type of legislation in the future there should be some guidelines issued as to the amount of delegation intended. Perhaps the Minister could elaborate somewhat on this aspect either when replying to this debate or on Committee Stage.
I note also that ministerial consent is required under the provisions of section 3. If the provisions allow for the establishment of such sub-boards, I do not understand why ministerial consent is required. Since we are keen on giving greater flexibility and commercial impetus to the board the less ministerial control there is involved the better, with the important proviso that any major policy changes or ones which would involve financial commitment over and above an agreed figure would require not only the consent of the Minister for Energy but also the consent of the Minister for Finance. I agree that that should be the case. In relation to any proposed administrative changes within the board's operations I honestly do not think that ministerial consent in as planned a form as put forward in section 3 would be required.
The legislation also brings about a very necessary amendment to the original Act by allowing Bord na Móna to get involved in operations outside the State, and that is to be welcomed when one considers the transition in Bord na Móna from being a production-led company to being a market-led company. In its efforts to find new peat products with added value and export potential, it is desirable that the board should have the power to involve itself in joint ventures and commercial operations outside the State and is not restricted to the small market within the State that has been its remit up to now.
When the board engages in the core business of peat and peat products, this should not be subject to ministerial consent inside or outside the State. In the last couple of weeks Bord na Móna acquired another company for a fairly good price, if financial reports in the papers are to be believed. This has the potential of providing a necessary distribution network for Bord na Móna to launch their products, particularly horticultural peat moss, into the continental market. That is an example of what can be done without the need for correspondence between Bord na Móna head office and the Department of Energy. It was a strictly commercial operation, a management decision, which should not require this arid constraint of ministerial consent.
While the power to market turf and turf products is not subject to ministerial consent, it appears that all contracts, hire purchase schemes, even promotions, displays or exhibitions outside the State are made subject to the consent of two Ministers. Promotions, displays and contracts are an essential part of marketing, so there would seem to be a contradiction between sections 4 and 7 of the Bill. A marketing manager has been appointed by the board; changes have been brought about and the image of the board's products, whatever about the image of the board itself, has substantially improved since the appointment of the marketing manager. It is totally unnecessary for a semi-State company with a projected turnover of £180 million in a few years' time to have to get the consent of the Minister for Energy and the Minister for Finance in relation to any displays or exhibitions in countries where they are trying to aggressively market their products. This would be regarded as unnecessary in the private sector. We are trying to commercialise our semi-State bodies and give them an image so that they can compete in the open market, so ministerial consent in that context is quite unnecessary. I understand the Department of Energy have acknowledged the point and are prepared to give the board a suitable letter, but a letter such as that is no substitute for correcting matters in the Bill and the fewer letters we have flying about the better. We have had too many letters and too much paperwork in the past.
Before I get into the wider area of where Bord na Móna are going. I would like to make a point in relation to cutaway bogs which are dealt with in section 7 (3) and (4). The Government have made the decision that forestry is to be dealt with by An Bord Coillte which has been set up and is in operation. The issue of the cutaway bogs is a very important one which I will go into in some more detail later on when speaking about the implications of these changes for my own constituency, particularly my own county of Offaly. It is to be regretted that the final report of the interdepartmental committee on cutaway bogs has not been published and made available to Bord na Móna. It has not been made available to public representatives like myself who represent the area, although we have a general idea of what is in it, and I see no reason we should not all know exactly what is in it. It makes provision for a multi-option strategy which will involve forestry in so far as about 60 per cent of the cutaway bog would be suitable for forestry and, subsequently, amenity purposes, tourist facilities like artificial lakes and so on, horticulture and grassland which has proved to be the best agricultural use to which it can be put. In section 7 (4) as drafted there is an effective power of veto by An Bord Coillte in relation to what Bord na Móna can do with cutaway bogs. The subsection reads:
After the formation and registration of the company referred to in section 9 (1) of the Forestry Act, 1988, the Board shall, not less than twelve months prior to any exercise in the State by it of the power conferred by paragraph (j) of subsection (1) of this section in relation to a cut-away bog, give notice in writing so to do to the company and, if the company before the expiry of the period of twelve months subsequent to the service of the notice, gives notice to the Board that the company requires or may require such bog then the Board shall not so exercise that power.
An Bord Coillte do not even have to say that they want it, just that they might want it at some stage. Such an area obviously would be an area that Bord na Móna might want to do something with, and they can be vetoed by An Bord Coillte who may say that Bord na Móna cannot certainly do something with it because An Bord Coillte might want to do something with it later on, and that could be ten years down the line. That is not acceptable to me or to many of the people I represent. I have made my views know privately to the Minister and I think he sees a certain validity in the case I have put. Let us remember that 60 per cent of the total cutaway bog will be accepted as being the proper preserve of An Bord Coillte for forestry purposes. I hope and expect there will be an amendment to that subsection which will leave us with a different arrangement in relation to disputed areas of bog which may be suitable for forestry or for some other more productive purpose. Some arbitration proceeding should be initiated, perhaps with the final decision being taken by the Minister for Energy who, given overwhelming evidence that the land need not be used for forestry but could be used for some other productive purpose, would allow Bord na Móna to develop it as they see fit. That would be a reasonable arrangement. I do not see why another semi-State body should have absolute veto, without a right of appeal to the Minister or anybody else, to decide what is to be done with it.
While we all want to see this new fledgling forestry company up and running, I do not think this track record when under the Department of Forestry, was such that we should give them a final say over what will happen to certain areas of cut-away bog they might be interested in. That is an unqualified power of veto that is unacceptable and totally unnecessary at the end of the day given the fact that Bord na Móna accept that 60 per cent of their cutaway bog will be suitable to An Bord Coillte anyway. If the percentage of cutaway bog increased to 65 or 70 per cent I would not like to see that 10 per cent residue being left idle on the basis that An Bord Coillte might use it if the other 60 per cent was damaged by a forest fire. The Minister understands my reservations and I hope he will be able to come up with some amendment. Otherwise we will debate it again on Committee Stage.
Section 9 relates to remuneration and conditions of employment. The Explanatory Memorandum refers to this as a standard provision. Yet it must be noted that there is no such provision in legislation dealing with CIE, the ESB, An Post, Aer Lingus and Telecom Éireann. The ESB were given a new Act in 1988 and CIE were given a new Act in 1986. It is fair to say that Bord na Móna have, in the main, observed Government directives relating to remuneration and conditions of employment and I do not think this provision is necessary. As far as I can ascertain, only An Bord Gáis and Irish Steel have similar provisions in their legislation. Perhaps the Minister in his reply, or on Committee Stage, would explain why it is necessary to include section 9 in the Bill.
One of the criticisms from the opposite side when this Bill was last debated in the Dáil was that it did not open up all the issues which affect Bord na Móna at present and the major decisions that are being taken and will have to be taken in the future to ensure their long-term viability and their continued presence and influence in the midlands' economy where they have such an extensive remit. It has to be pointed out that this Bill has been sought by Bord na Móna for some considerable time. It allows them the commercial flexibility they require to move progressively into a very highly competitive energy market, and hopefully we will see them survive and prosper in that new competitive environment both at home and overseas.
The Government are to be congratulated on the introduction of this Bill. We can have, as I have outlined in the past 20 minutes, some reservations about certain drafting aspects and certain sections of the Bill, but they can be overcome on Committee Stage. I do not think anybody would find fault with the principle of the Bill and the need to impose that principle on the company as soon as possible. All these new powers and the new opportunities they will hopefully give to the board are of limited value if the board do not get their financial structure right to enable them to compete with the various enterprises involved in the solid fuel market.
Bord na Móna owe about £166 million. As of March 1988, that comprised of Exchequer borrowings of £25 million at fixed rates; European Investment Bank loans totalling £31 million repayable by annuity; long-term bank loans totalling £86 million at floating rates and short-term bank loans totalling £22 million, again at floating rates. In relation to the European Investment Bank loans, it is only fair to say that successive Governments have been culpable — perhaps that is too strong a word — but they certainly have been slightly avaricious in that the 3 per cent interest subsidy rebate that is due upon payment of interest charges on those loans, is being retained by the Exchequer. It is not right that Bord na Móna should have to make this type of interest repayment, totalling almost £20 million a year, regardless of hail, rain or shine and regardless of their levels of profitability. The interest subsidy that is recoupable, having paid the interest on the loan, should go back to the company who are hard pressed to pay the loan in the first place and not to Government Exchequer coffers as has happened under successive Governments.
Given the rationalisation that is taking place and the sacrifices that are being made, and will continue to be made, the Government of the day, no matter what Government, could give concrete support to the company when experiencing difficulties by accepting that that 3 per cent interest subsidy be repayable to Bord na Móna and not to anybody else. It is not fair that Bord na Móna do not get that benefit. In one year the interest subsidy was of the order of £923,000, a sizeable sum which would have been better employed by the board given that they had to make the interest payment regardless of their ability to do so, and unfortunately that has been the case in the last few years.
The Minister will have to carefully monitor the efforts being made to bring about a much better debt management within the company. I hope the negotiations that will take place with the Department of Finance to facilitate the better management of that debt will not be blocked by a tunnel vision approach of some officials in that Department who may not be very sympathetic in allowing the board to come to some new arrangement in relation to the repayment of Exchequer loans by the company. I accept that in present financial circumstances nobody is on a free lunch any more and that the Government have to work within very tight fiscal targets. Given the contribution this company have made to the midlands economy, some consideration should be given in the future to see if the Government of the day could invest, on behalf of the taxpayer, some equity in this company.
Probably one of the main reasons Bord na Móna are experiencing difficulty is that they have not been able to take equity in the company. Because of the energy policy being promoted in 1973-74 to forge ahead with a new third development programme to borrow money in the private sector, to fund new development and new exploitation of bog, to increase our capacity in the peat fire burning stations, to ensure that we would not be as dependent as we had been at that time on oil as a result of the first oil crisis in 1973-74, the company did that and the energy market has since changed. The assumptions which were made no longer apply and the board found themselves having to repay that money, and they will have to continue repaying it.
Because it is such a weather dependent industry, regardless of whether it was profit making in any particular year, they could not say as would be the case with shareholders in a private company that they were not giving out a dividend this year, because they had a bad year. The company's financial base was so structured that they have to make those interest repayments regardless of profitability levels. In the late seventies and early eighties at a time of high interest rates, they were paying 14 per cent or 15 per cent interest on loans. If you use that analogy in a private company, it is equivalent to the sort of dividend that could not be paid by Goodmans or Smurfits no matter how profitable they were.
This is the sort of thing that happens to semi-State companies which are financed under an Act of the Oireachtas. When a company gets into difficulty great efforts are made by some to portray what was a flagship of the semi-State sector in terms of its contribution to the Irish economy, as some sort of lame duck which can now be disposed of or wound up to meet the repayments that fall due, without putting into context where the financial problem arose and the limitations placed on a major semi-State company like Bord na Móna, as distinct from a burgeoning company in the private sector which seeks to expand by calling in capital and extending its shareholdings and issuing new share capital.
Having put that in context the present and the future position of Bord na Móna depends very much on whether they can get their raw material, basically the milled peat, down to a competitive cost which, in turn, can make their briquettes more competitive and their price to the ESB more competitive given that the ESB now have Moneypoint on stream. I have heard this mentioned by Opposition spokespersons on Second Stage, and particularly by the Progressive Democrats: when we talk about the cost handicap of peat as a fuel for electricity generation purposes, it is well to remember that it was strategically important that we had that facility in the seventies when we had the oil crisis. It is strategically important to have it at all times, regardless of whether we have a very competitive energy market, given the fluctuations that can occur in coal, oil, or anything else. More importantly than that, we have built up around it in the midlands economy, and particularly in County Offaly, a level of prosperity.
Let it be remembered by those who seek to impose a rationalisation of Board na Móna, simply on economic criteria that there would be no consultants' report on Bord na Móna were it not for the fact that in the forties a Fianna Fáil Government felt they had a social obligation to set up Bord na Móna in an area where no private enterprise would go and to provide employment as that great company have done. When we talk about planning permissions and the need to have an environmental impact assessment carried out — if it is only for a pig plant — will we get a Government consultants' report based on strictly economic criteria, but we will not have a social impact assessment on a whole strength of country from Birr to Clonsast in my own county. I can name villages and towns which are totally dependent on the wage packets paid by that company. That is my concern.
I am also concerned, in our rationalisation proposals, we might lose sight of the human resources which have built up that company and which would go to waste if we are not prepared to look at the overall picture. When those of the right in this Parliament — I heard them on this debate before Christmas — talk about the need for viability and for exclusively commercial criteria, they should remember that the point they are making would not arise but for the fact that a social obligation was identified and through the efforts of the men and women in that company an enormous contribution to the economy and to this country has been made over the past 40 years.
While we accept that rationalisation is necessary and anyone who is prepared or interested in analysing the problems and trying to secure the long term viability of Bord na Móna sees rationalisation as necessary, it is not the antithesis of that to say that Bord na Móna's socio-economic role must be recognised in my county and in the midlands economy and that the maximisation of secure employment is something that can continue within the board, and which can continue to support communities, too numerous to mention, if it is allowed to do so.
The need to continue to supply the ESB power stations with milled peat, regardless of what would be regarded as a cost handicap, is not simply strategic either. If one looks at the cost of electricity — we all agree that it is the policy of the Government to reduce the cost of electricity — one must remember that the stations fired by milled peat account for only about 11 per cent of total generating capacity in the ESB. Therefore, if we are talking about reductions in electricity prices by rationalising our electricity industry we do not have to do it at the total annihilation of our peat industry because the latter industry accounts for only 11 per cent of total generating capacity. The company that provides the raw material for one tenth of total generating capacity should not feel the full brunt of any rationalisation that is required to bring down electricity prices.
I would like to quote from a Confederation of Irish Industry Newsletter, Volume 49, No. 23, of 25 October 1988, a survey of electricity prices in EC countries which showed that Irish industrial electricity charges continue to decline. The newsletter states that changes:
have taken place in industrial electricity prices per kW hour, nominated in a common currency, the ECU, between 1st January 1986 and 1st January 1988. During this period electricity prices in Ireland for small industrial users have reduced from 117.5 per cent of the EC average to 107.7 per cent of the EC average at 1st January 1988. This does not take into account the further reduction of 5 per cent incident to the 1988 Budget. Charges for medium industrial users reduced from 119.8 per cent of the European average in 1986 to the European average at 1st January 1988. For larger industrial users Irish industrial electricity prices have fallen from 125.8 per cent of the EC average in January 1986 to 99.3 per cent of the average at 1st January 1988.
Again that did not take into account the further reduction of 5 per cent in the 1988 budget. When the argument is put forward, as has been put obliquely by some Opposition Members in their Second Stage contributions that, of course, it is necessary to rationalise Bord na Móna simply on the premise that the cost of electricity generation is far too high, that is not the full story because Bord na Móna only contribute to one tenth of the total ESB capacity and in any event we are seeing a reduction in the cost of electricity vis-á-vis our competitors in the EC as we approach the completion of the internal market. This is not a reason simpliciter that one should talk about reducing the milled peat quotas to fire the peat burning stations.
However, one has to accept that the necessity for constant supply to the ESB has to be a high priority with Bord na Móna. A high quality product is required to retain a competitive contract to the ESB. The proposals put forward by management to change the system of stockpiling from PECO system to HAKU system starting with 10 per cent this year is, according to them, the sort of system which will enhance quality and ensure that all peat milled is recoverable and saleable. Because the new system has a 30 per cent increase on the PECO system is terms of the amount of peat that can be gathered in the same area of bog, management believe that this will ensure that targets can be met and that a constant supply can be guaranteed. We have had very bad weather in the past few years during the production season. In 1985 there was only 37 per cent production as a result of the disastrous weather. In 1986, the weather was not much better but we had a fairly good autumn and this brought production up to 77 per cent, in 1987 production was at 102 per cent while in 1988 it was back down to 60 per cent. The introduction of new peat technologies within the production capacity of the board is something we must agree needs to be looked at. I think it is now the case, given the discussions that are taking place, that the trade union movement will accept the introduction of new technology without seeking to impose a precondition that the new technologies cannot be countenanced at all. I think it is accepted by the unions that the introduction of such a system meets with no objection in principle but that the real problem arises when it is proposed to put it out on contract.
The level of voluntary redundancies in Bord na Móna, totalling 1,200, is something that we very much regret but when one considers the figures for the 1986 production season, for example, that out of a total expenditure of £88.369 million, over £61 million related to wages and salaries, and wage overheads and that this constituted 70 per cent of the total cost of production in that year, it is quite clear that when talking about reducing necessary costs this means reducing wage cost and by implication wages. There is a need to look at this. Thankfully all those who have left Bord na Móna have done so on a voluntary basis rather than being forced to take compulsory redundancy. Having said that, those who are left, work in a direct labour system.
Management propose to convert the direct labour system to a contract system progressively over five years, starting with 10 per cent this year, moving up another 20 per cent next year to 100 per cent in five years time. The new system is regarded as a more flexible approach. This ethos is necessary in order to cut costs and get the necessary quality and level of production up. I can see that, over a period with a change in the work-place and the change in attitude, that such a system would be ultimately beneficial but such a change in the absence of a job replacement policy would result in major socio-economic problems for County Offaly. There is no question about that. A job reduction policy has already been put in place, and in the absence of a job replacement policy one can see major problems.
This also brings into play the role of a semi-State company. We have seen in well publicised examples, where fewer jobs have been shed, an obligation being put on the semi-State company concerned to seek out job replacement proposals before proceeding with rationalisation that was not of the magnitude I am talking about in Bord na Móna. That is the proper thing to do. In areas which did not span four or five counties but three or four townlands, we have seen a semi-State company find replacement industries or at least have assurances that they are being set up before proceeding with the job reduction policy. I have to say as a humble backbencher that, given the fact that Bord na Móna constitute 33? per cent of the jobs in the manufacturing sector in County Offaly, and that we have lost 700 jobs already as a result of the voluntary redundancy programme, with possibly more to come if the transfer to the contract system is to go ahead, it will be necessary for the Government to have a job replacement policy. The Fianna Fáil organisation in County Offaly will want Government intervention to be seen to bring about a change. They will want to know that it is not simply a job reduction policy but a job replacement policy. I am simply putting the cards of the Fianna Fáil organisation in my county on the table, as they have asked me to.