Dáil Éireann debate -
Tuesday, 16 Feb 1993

Vol. 426 No. 1

Private Business. - Nitrigin Éireann Teoranta Bill, 1993: Second Stage.

Minister of State at the Department of Enterprise and Employment (Mr. S. Brennan)

I move: "That the Bill be now read a Second Time."

As Deputies will be aware from the explanatory memorandum already circulated, the purpose of this Bill is to increase the authorised share capital of Nítrigin Éireann Teoranta by £22.5 million, that is from £77.5 million to £100 million, to authorise the Minister for Finance to subscribe for shares up to the new level of £100 million and to increase the company's facility to borrow under ministerial guarantee by £20 million from the existing limit of £180 million to £200 million. The text of the Bill is in standard format and should not give rise to any major difficulty.

Over the past 30 years the company and its financial difficulties has been the subject of much attention and debate within the Oireachtas and I will now briefly outline the background which has given rise to the necessity for this legislation.

NET was established in 1961 as a State-sponsored company to manufacture nitrogenous fertilisers at Arklow. The company started in a relatively modest way but expanded to the stage where, after the completion of the Marino Point plant in 1979, it was one of the largest manufacturing companies and a major chemical undertaking employing over 1,500 people. While the Arklow plant operated profitably up to the early seventies the growth of import competition pushed it into a loss making situation from 1974. The construction of the Marino Point plant to produce ammonia for natural gas and the cost overruns which pushed the final cost of this project up to £137 million, largely funded by borrowings, left NET with a burden of debt from which they have never freed themselves despite extensive support from State funds.

The State support afforded has been of enormous proportions. Initially the Arklow plant was funded by borrowings. The Nítrigin Éireann Teoranta Act, 1963, had set the issued share capital at only £100 but provided for State advances of up to £6 million and a facility to borrow £1 million with a ministerial guarantee. In 1970 the company was put on a more commercial basis when the share capital was increased to £7.5 million including £3.5 million in the capitalisation of State advances and the limit for loan guarantees increases to £2 million.

As the construction of the Marino Point plant advanced the share capital was increased in 1977 to £27.5 million and the limit for State guarantees increased to £30 million. By 1981 it was necessary because of the company's dire financial situation to come back to the Oireachtas to provide another £100 million for NET, £50 million by way of additional equity and a further £50 million in State guarantees for its borrowings. In 1987 with the setting up of the joint venture with ICI, the old core debt of over £160 million was left with NET and legislation introduced to increase the limit for ministerial guarantees on NET's borrowings from £150 million to £180 million to enable the issue of a State guarantee for the full debt.

By the early eighties it was clearly recognised that because of the cost overruns and operating losses in the early years of the Marino Point plant, a substantial part of the NET debt was a sunk cost which could not be expected to be recovered. The overall size of the debt and the costs of servicing it were such as to keep the future of NET's fertiliser business and that of its employees in constant jeopardy. However, the future of the business was safeguarded with the formation of the joint venture with Imperial Chemical Industries in 1987 whereby NET's fertiliser businesses at Cork and Arklow and ICI's Richardsons Fertilizers at Belfast were transferred to the new joint venture company, Irish Fertilizer Industries Limited, with NET's old core capital debt, most of which was guaranteed by the State, left with NET.

Under the joint venture arrangements NET took a 51 per cent shareholding in the new company with ICI taking the remaining 49 per cent. In addition, NET entered into a long term agreement with IFI for the supply of its gas allocation at an arm's length price to IFI. The old accumulated NET debt, which was £164.6 million on 30 September 1987, remained with NET with the intention that NET would service the borrowings involved from its income from profits on the sale of gas to Irish Fertilizer Industries Limited and dividends from that company. Since 1987, therefore, NET's primary activity has been the management of its debt portfolio as well as managing a gas contract and monitoring IFI.

While the new joint venture company, Irish Fertilizer Industries Limited, has operated quite profitably since it commenced trading on 1 October 1987, the combined income accruing to NET from its profits on the sale of gas and from dividends from IFI has been insufficient to fully cover the interest payable on NET's borowings. As a result, the shortfall in interest has had to be converted into new State guaranteed borrowings with the result that overall borrowings have continued to grow and have now reached £180 million. This is the maximum that may be guaranteed by the State under the provisions of the Nítrigin Éireann Teoranta Acts.

The following figures illustrate the situation. At the setting up of the joint venture in 1987, the debt remaining with NET, after working capital adjustments, was £164.6 million. Over the ensuing five years ending on 30 September 1992, on a cash flow basis NET received a net income of £70.9 million from IFI but the interest payments on its massive debt over those five years amounted to £85.2 million — a shortfall of £14.3 million. The addition to this shortfall of operating expenses left NET with a closing debt of £179.9 million on 30 September 1992.

The principal reason for the shortfall in NET's income and the consequential build up in its debt, has been the comparative weakness over recent years of oil prices in Irish pound terms on which the basic price that Irish Fertilizer Industries Limited pays NET for its supply of natural gas is based. While the economy at large has benefited considerably from the reduction in international prices for oil, in Irish pound terms, the reverse has been the case for NET. NET's financial flow has been dependent on four very volatile elements: fertiliser profits, interest rates, the dollar/pound exchange rates and international oil prices. The behaviour of the three latter elements over the past five years has proved less favourable to NET than earlier expected.

There was a slight improvement in NET's financial position during 1991, with oil prices high because of the Gulf War and more buoyant prices for fertilisers. However, the position severely deteriorated from the beginning of 1992 with oil prices dropping to their lowest in Irish pound terms since 1987 and the basic gas price payable by Irish Fertilizer Industries Limited consequently the lowest in five years. With only a marginal reduction in the purchase price payable by NET to BGE for gas, NET's profit margin on sales to Irish Fertilizer Industries Limited was severely reduced. At the end of 1991, reflecting the buoyant conditions of 1991, NET's net debt situation on a cash flow basis, i.e., borrowings less cash reserves, had come down to £171 million. However, by the end of September 1992 this had risen to £179.9 million.

Since September 1992 the already difficult position of NET has considerably worsened because of the devaluation of sterling and the currency crisis. NET was affected in two ways: first because over 55 per cent of its borrowings are at floating rates, the rise in interest rates greatly increased its interest costs and, secondly, because a substantial proportion of IFI's income is dependent on returns from the UK, both by way of sales in Britain and in the results of its Northern Ireland subsidiary, the devaluation of sterling impacted on the profits of Irish Fertilizer Industries Limited for 1991-92, and consequently NET's income from that company.

Because of this worsening situation, NET's borrowing requirements reached £181.6 million by the end of November 1992 and, as the excess over £180 million could not be rolled over into further bank borrowings because of the £180 million legislative limit on guaranteed borrowings, £1.96 million was issued to the company by way of repayable Exchequer advances. This was the maximum that could be provided under the Exchequer advances provision of the Nítrigin Éireann Acts but was sufficient to maintain the solvency of NET to nearer the end of December when further major payments became due. In order to enable NET meet these payments, a grant of £6 million had to be voted for the company in December 1992 to keep it in sufficient funds to meet interest payments due up to March 1993.

I must emphasise that over these five years NET's borrowings were covered by a ministerial guarantee as to payment of both principal and interest and if NET were to default on payment of interest on any particular loan or loans as they fell due, the State, as guarantor, immediately would have become liable to pay. A default in any payment by NET would have immediate consequences on its future ability to trade and its solvency with direct responsibility for all its borrowings then falling on the Exchequer.

NET's financial difficulties can be traced directly back in time to the cost overruns, funded largely by borrowings in the late seventies, on the construction of the £137 million Marino Point plant to manufacture ammonia and urea from natural gas. In retrospect, while as a result of this investment we have a strong competitive fertiliser industry employing in excess of 700 on this island, it has been at a very high cost to the taxpayer. The current situation is that NET has debts in excess of £180 million with the realisable value of its assets probably now worth much less than that. These assets are its favourable gas contract with BGE and its 51 per cent shareholding in IFI. It must, therefore, be recognised that a substantial proportion of its £180 million debt is a sunk cost which will not be recovered within NET's future income by way of gas price and dividends from IFI. With NET's income over the past five years inadequate to cover even the interest on its borrowings, the rolling over of each year's shortfall in interest payments into new guaranteed borrowings only further increases the debt which will ultimately have to be met by the State.

An option that has been given consideration over the past year has been the sale of NET's shares in Irish Fertilizer Industries Limited. Freed from the old core debt that remained with NET, Irish Fertilizer Industries Limited has been trading very profitably. The Government is interested in discussing with potential purchasers a sale of shares in this highly profitable company but only at the right price. A number of parties have expressed an interest in that company, particularly since the time that the minority shareholder, ICI, indicated its intention to reduce substantially its fertiliser interests in the UK. A sale of its shares in IFI on satisfactory terms could substantially improve NET's liquidity in the short to medium-term, but this would also necessitate the negotiation of a new gas agreement. It would also remove any conflict that might arise between NET's need to maximise receipts from IFI to meet its short term debt servicing requirements and IFI's needs to retain earnings to fund future growth. While NET has had discussions with interested parties, no definitive offer was made to them. If such an offer were made it would be a matter first for the board of NET to consider but ultimately a matter for Government decision.

In the meantime provision has to be made to enable NET to continue to meet its debts. I must stress that unless this action is taken NET will be insolvent by the end of March leading to the prospect of responsibility for its £180 million in borrowings and the interest accruing, falling directly on the Exchequer.

I want to inform the House today in view of the worsening debt position I am asking the National Treasury Management Agency to look closely at the debt aspect of NET.

I am confident that the Nítrigin Éireann Teoranta Bill will commend itself to the Dáil and I recommend the Bill for its approval.

Mr. R. Bruton

I take this opportunity to congratulate the Chair.

The Minister's speech makes grim listening for many in this House to learn that NET is technically insolvent. The company has had a chequered history. The Marino Point construction which was costed at £63 million actually cost £137 million. As the Minister rightly points out, that was the start of the rot as far as this company is concerned.

This debate raises much wider issues about public policy in this area. I am disappointed that the Minister skated very lightly over the direction of Government policy in this area. At present NET takes 25 per cent of our gas, one of the few natural resources we have developed. The price it pays for that gas is extraordinarily low. The Culliton report, to which we all now refer deferentially, estimated the extent to which that cost was, in effect, a subsidy. It showed that the ESB pays almost three times the NET price for gas and the ordinary customer, industry and domestic users, pay more than five times.

This means that on paper NET pays £14 million for the gas it uses and buys from BGE but it would cost £42 million more if it were paying the same price as ordinary customers. In other words, over a ten year period, 1982-92, through a hidden subsidy, we have been putting £400 million into NET without any corresponding benefit to that operation which, over that same period, accumulated losses of £222 million. This is a very serious situation by any reckoning and deserves greater analysis by the Minister on the past and future strategy for this company.

As the Minister said, in 1987 the State guaranteed £160 million borrowing that has crept up to over £180 million and now, after the debt limit has already been exceeded by the company, which is not a satisfactory way to do business and does not illustrate a great deal of forward planning on the Government's approach to this company, we are legislating to further extend those guarantees to £200 million. It seems that the holding company system we set up and which was welcomed by all Members of the House in 1987 is being used as a back door where the State is sucked into guaranteeing all these losses in a commercial enterprise about which we do not know very much. Their returns are not published. We do not have access to these returns which are 51 per cent owned by the State. We do not know what is happening in the fertiliser business. All we can glean is from reports of the worldwide state of the fertiliser industry particularly in Europe, which is catastrophic.

As I understand it, the opening up of eastern Europe and the access of eastern European fertiliser plants to the markets has created an extraordinarily difficult situation for established operators. The real price of fertiliser has dropped to half of what it was in 1985 in real terms. Obviously this has created huge problems within the industry. Over that period we have seen a steady decline in employment in the industry in Ireland but we are not privy to the facts of this company for which we, as taxpayers, are responsible for more than half. This is very unsatisfactory. The Minister did not offer a five year strategic plan for the company. It is not even clear whether the Government has the company's five year strategic plan and where it sees the company heading.

To add to the difficulties, ICI, the 49 per cent shareholder, has indicated it is trying to divest itself of its interests in the fertiliser industry in the UK. It sought to sell these businesses and indicated if a buyer could not be found in the UK it would close them down unilaterally. The chairman of ICI was quoted as saying about the fertiliser industry in the UK that "although it is making modest profits at present we cannot see any way of restoring levels of profitability which would justify reinvestment". The operator of less than the other half of the company seems to be more forthcoming than the Minister about the prospects for this industry being a success. He is not sanguine about the prospects in the UK. We do not know whether Ireland's industry is much healthier than that but obviously it is disturbing to hear those views expressed by the other major shareholder. It would seem that ICI is attempting to divest itself of 49 per cent of NET. The Minister tells us today that the Government would want to privatise its 51 per cent share in the company.

In relation to expressions of interest it is not clear from the Minister's speech how successful they are. I am not satisfied with the Government's approach to privatisation which effectively is what this is. I thought the approach to privatisation would be based on a more detailed white Paper approach, setting out the pros and cons of this strategy.

My understanding was that Members of this House, before my time, saw this industry as of enormous strategic importance, and that was the basis on which State money was invested and an attempt made to sustain the industry. It now seems that policy is being jettisoned — almost as an aside at the end of the Minister's speech — and because the problems are getting more difficult, we are going to try to get of the company. I find it a far from satisfactory way of doing our business in the House. We are dealing with a company whose accounts we do not see. We see the shell company that is holding the debt and its continuing deterioration, with more State equity and guarantees being put into the company. I hope the Minister will be more forthcoming in responding to this debate by spelling out precisely what shape the Irish industry is in and how dependent it is on low price gas. Is the IFI contract with NET a commercial arms' length contract? We have never seen the terms of that contract. We do not know if the profits IFI are enjoying are the true arm's length profits or if they are "false" profits based on the lower than normal price of gas being available to them.

This issue raises major implications for public policy which the Minister has not touched. The Culliton report made a number of recommendations in this area, the most relevant being on page 47 of the report: The continued supply of considerable volumes of cut price gas to the fertiliser industry at less than economic bargain price is inconsistent with getting the maximum national benefit from indigenous gas resources.

It goes on to recommend that BGE should charge NET/IFI a more commercial price for the gas. If they are not willing to pay such a price, then the gas allocation should be put to more productive use.

The Culliton report clearly proposes a very stark option as to how we should use the gas. Against the background of an effective £400 million subsidy on gas prices over the last ten years, this is a recommendation which cannot be let go without comment from the Minister today.

Is the Minister saying that this will be policy direction? He mentions the necessity to negotiate a new gas agreement. Would that mean that the BGE contract at a knock down price would be forever at an end and that the Irish public would get full value for the natural gas being taken from the ground?

The Culliton report recommends that there should be independently verified cost transparency on all pricing of gas. That was never a feature of the arrangement reached between IFI and NET acting on behalf of the taxpayer.

In short, the House does not have many options as far as the Bill is concerned. It is clear from the Minister's statement that already we have exceeded the borrowing limits and the alternative to doing something today is that the company will be insolvent. I ask the Minister to address in his reply the strategic future he sees for this industry; where its 750 employees will stand as a consequence of his proposals to sell off the company; how will their jobs be protected in the process of a sell off; and if he has full Cabinet support for this approach. My impression was that the Labour Party was strenuously opposed to any such approach to dealing with State companies or State joint ventures of this nature.

I hope the Minister will elaborate on how he sees the future, apart from the very narrow response he has given of essentially having to put more money into the company or it will become insolvent.

I congratulate the Minister for asking the Treasury Management Agency to look at the debt aspect of NET. That is probably long overdue given that debts have been continually rising. If the implication is that debt management has not been of the highest calibre, that is a worrying feature. I look forward to the Minister's reply. On behalf of our party, we give grudging support to this measure because the alternative is so bleak.

Mr. Cullen

I congratulate the Minister of State on his appointment and wish him well.

I am disappointed the Minister for Enterprise and Employment is not here today to set out a wide ranging approach to the policy which will be adopted. No disrespect to the Minister who is here this afternoon.

The Nítrigin Éireann Teoranta Bill, 1993, raises more questions than it gives answers about the future of NET. It would have been better if the Minister were here outlining Government policy on the future of NET and if this legislation allowed for the implementation of that policy. Regrettably, that is not the case. I sincerely hope this Minister will lead his Department in a development role ensuring that all legislation will have a clear policy direction underpinning it. It is clear that notwithstanding the circumstances, there is no policy direction underlining this legislation.

The creation of the new Department of Enterprise and Employment brings with it wonderful opportunities but there are also great challenges in facing the onerous tasks that lie ahead. It is of the utmost importance that this Minister sets out, at an early stage, the policy initiatives and the developmental role that his new Department must play in tackling the jobs crisis. The Minister must pursue a clear policy line which embodies a legislative approach which gives vent to the implementation of new policies.

The type of legislation before us today, which is simply a means of shoring up a situation without tackling the underlying problems, should not be brought before this House again within the lifetime of this Government, particularly from this Department. This Bill is clearly designed as a short term measure allowing the State to put more money into a company which has the capacity to absorb huge amounts of scarce resources while at the same time providing very little return to the general taxpayer for his or her investment. The crisis which exists in NET cannot continue to be dealt with in this manner.

To date, the State has invested £77.5 million and guaranteed borrowings of £180 million in NET, bringing the total investment, one could say, to £257.5 million. This company, as the Minister has more or less acknowledged this afternoon, will never have the ability to repay this sum. I understand that some of this money will be recovered on any potential sale, but exactly how much remains to be seen. This is an enormous investment by the State, which must be seen as a questionable area of State activity and one in which continuing State involvement gives rise to very serious concern.

The formation of NET to have an indigenous fertiliser industry, had a certain logic to it. At the time, Ireland's largest industry was agriculture and therefore there was a large ready made market for fertilisers. That market has changed dramatically since the establishment of the company in 1965. In 1970 our nitrogen requirement was a mere 80,000 tons of nutrients, by 1986 the nitrogen requirement had peaked at 375,000 tons. However, the introduction of ceilings on output and recent restrictions on stocking rates will mean a static, if not a declining, market for fertilisers in this country. We are already aware of the decline in markets throughout the world and we are witnessing a major restructuring of the international fertiliser industry. Major international players have retrenched in recent times. ICI, the joint shareholder in Irish Fertilizer Industries, is withdrawing from the manufacturer of finished fertiliser products in the UK and is alleged to be withdrawing from joint venture arrangements in Malaysia and Canada.

In the context of this reduction in the activity of ICI surely it makes little sense for the Irish Government to commit itself to further investment without first having access to the detailed long term business plans for the company. If there is no long term business plan, the Minister should certainly demand one. That is a fair suggestion and should be taken on board by the Government.

Even within a few years of the establishment of the company, the decisions taken by the State were seriously in question. Discovery, however, of the natural gas field off Kinsale Head gave a new momentum to the prospects for NET. The State company was given an allocation of gas from the field for the manufacture of ammonia. The construction of a new ammonia urea plant at Marino Point in Cork was agreed and the project duly commenced. This project was originally budgeted to cost £63.5 million but, as we know, after a long series of delays the project was finally completed at the staggering cost of £137.3 million. This was disaster on a grand scale and made it virtually impossible, as the Minister has admitted this afternoon, for NET ever to become a viable commercial company.

The millstone of debt around the neck of NET was at crisis proportions. This led to further State investment in the company, in terms of share capital of £50 million. Unfortunately this made little contribution to turning the company around. The company has continued to make huge losses in the intervening years, apart from a brief respite in 1984 and 1985 when small profits were returned. However, by 1987 the total debt of the company guaranteed by the State, was just under £180 million.

The search was now on for NET to find a partner in the fertiliser industry and, as we are aware, we saw the formation of Irish Fertilizer Industries, a joint venture company owned 51 per cent by NET and 49 per cent by ICI. IFI is one of the three leading suppliers of fertilisers on the Irish market. However, with a total production of 2.5 million tonnes they are also key suppliers of ammonium nitrate to other Irish fertiliser blenders. On the surface, this seemed a straightforward deal which would greatly benefit NET but the truth is different.

NET's current main functions are to manage the debt and to purchase gas from BGE selling it on at a profit to IFI. The real cost of this deal to BGE is staggering and, in my opinion, is an incredible form of subsidisation of NET by BGE. According to the Culliton report the price paid for gas by NET is approximately one-third of the price paid by the ESB and only one-fifth the price paid by the industrial and residential consumers. This has already been referred to in the House today. The Culliton report — in the section entitled Energy for Industry — a policy review, based on a report compiled by DKM Consultants Limited, outlines the facts with regard to this deal. That report makes the point that if NET had been paying at least the same price as the ESB — which also receives gas substantially below the industrial market price from BGE — the income foregone by BGE since 1982 on this deal exceeds £200 million in nominal terms and £250 million in 1990 terms. There may be some disagreement or debate about how precise these figures are but I have no doubt they are probably correct in view of what has been happening since 1982. This is largesse on a grand scale, and it is mind boggling when one adds this figure to the current indebtedness of NET. One way or another, through a succession of complicated deals, one could say that NET has cost the State in excess of £500 million.

It is estimated that over 25 per cent of indigenous gas supply has been allocated to NET since 1982. One must ask what has been the corresponding benefit from NET for this incredible subsidisation. To put this in perspective, as Culliton pointed out, reserves used by NET could have deferred the need for a natural gas interconnector to the UK by up to four to five years. This knock down price gas deal is an industrial scandal on a grand scale which has brought few benefits in real terms to the companies involved or in particular to the Exchequer which is ultimately responsible to the taxpayer.

We must not overlook the vital importance of the employment provided by NET and IFI but the level of subsidisation must be called into question. We would be remiss if we did not point out the obvious in this regard. Given the unemployment crisis nobody wants to see deterioration in that regard, but one has to look at realistic and reasonable values in terms of the cost of providing employment. When I studied all the figures in the reports of the Minister's colleague, the present Taoiseach, and what he said in the Dáil debate in 1987 it appeared to me that serious questions had to be raised about the benefits this country got in the last five, six or seven years.

It is clear to me that we are behaving as if we had billions of uncapped reserves and natural resources, an extremely sound economy and a budgetary situation that requires no borrowing. The opposite is the true picture. I would love to know the real cost to the taxpayer of every bag of fertiliser produced in this country. I am sure it would be absolutely staggering.

The structure of IFI is such that ICI, with 49 per cent shareholding annually receives a return on its investment and it gets a dividend. The return in profits to NET, on the other hand, is enough to pay the interest charges on its debts. NET also makes a profit on the sale of gas to IFI but what is the cost in real terms to our Irish gas reserves and the substantial losses of revenue to BGE?

What is the real strategic benefit now to the Irish State, of being involved in the production of fertiliser? I suggest since 1993 there has been none and the Government should move to disengage itself from this activity. I have no doubt that to do so will involve a considerable loss to the Irish Exchequer. However, to continue the approach to NET that has been maintained by successive Governments over the last decade would be an enormous folly, the cost of which this country cannot bear. The Government has few choices and hard decisions must be taken. To do nothing would be to abdicate Government responsibility and that would be unacceptable.

On occasion, we have heard about other companies interested in purchasing NET and its subsidiaries — the Minister mentioned this fact this afternoon. It is interesting that he should do so and that the Department should be looking at the options which may be available with regard to the future of this company. I would like to ask the Minister if any such proposal is being considered by his Department at present? Is there a potential buyer? I appreciate the confidentiality of the matters involved but perhaps the Minister could tell us if that is the case?

The Minister also said in his speech — as I interpret it — that interested parties did not come up with the right price. I wonder if the right price, in the Department's view, was weighed against further investment in the company and the continuing cost to the Exchequer. These are realities which will have to be faced and which, in fairness to the Minister, he has outlined on the position of the fertiliser industry and market worldwide.

The sale of NET will undoubtedly mean a substantial loss to the State as the sale price is likely to be a fraction of the NET debt which is guaranteed by the Government. However, I believe this option must be vigorously pursued by the present Government. I can see no strategic need for the Government, on behalf of the taxpayers, to be directly involved in fertiliser production.

I do not say this from an ideological point of view. The resources available to this State are scarce and they must be managed carefully and utilised to achieve their maximum potential. Any reasonable politician will have to ask themselves how we can best utilise and maximise the scarce resources available to us. While we would all like to have the money to fund every project — and I am sure we could make an argument for the funding of every project — the reality is that we have not the luxury of being able to do that. Therefore, there is a responsibility on all of us to ensure that these scarce resources are maximised so that their full potential can be realised.

The NET Group workforce are entitled to a more secure future. In recent years they have been deeply concerned about the situation in these companies. They fully realise the difficulties in the market and the uncertainty of their position. There is a responsibility on the Minister, particularly the Minister for Enterprise and Employment, to state a clear policy position in this regard. The Minister has indicated this afternoon that the sale of the company may be the best way forward. However, decisions will have to be taken to place the company on a sounder footing and these will have to be implemented sooner rather than later. In my view, the sooner the better.

The Bill before us today has two objectives: the first is for the State to increase its investment in a company from £77.5 million to £100 million and the second is to increase the borrowings of the company guaranteed by the State from £180 million to £200 million. The fact that the Minister wants to make available to NET an extra £42.5 million does not give one much confidence for the future and brings into sharp focus the crisis which still surrounds this company. I believe the amount of potential moneys which the Minister is requiring here today is too great and will remove from the Minister the responsibility of making a substantial policy decision or, indeed, taking a serious look at whether the State should continue to be involved with NET. The fact that not all the money may be required immediately is small comfort given the company's track record. It is clear — and one has seen the succession of Bills since this company was formed — that it will not be long before the limits of the present Bill will be fully reached and the Minister will be back to square one, forced to produce a similar Bill to find more share capital and another increase in the moneys that can be guaranteed by the State. The Minister's response is wholly inadequate and I am not prepared to give him carte blanche to spend taxpayers' money. The reality is that the Minister cannot and should not be allowed to walk away from his responsibilities in this matter.

This is a very poor start by the new Government and has very strong shades of the usual attitude of the Labour Party in Government — throw enough money at a problem and hope it can be solved that way. Given our current economic crisis, which has been greatly exacerbated over the last four months by the currency problems, one would have hoped for a fresh approach to these matters by the new Minister for Enterprise and Employment. Sadly, this is not the case and instead we have a Minister following a well worn and predictable path. The Minister sets down no policy position for this major State company. There is no real investigation into what are strategic needs. Indeed, there is a total absence of major and substantial policy decisions which will have to be taken by the Minister and his Department.

I find Minister Quinn's references to Culliton being a key element in his economic strategy hollow, given what is in the Culliton report and what the Department proposes here this afternoon. When it comes to making real decisions, it is not enough to speak of the Culliton report in glowing terms nor will it be enough to implement what might be termed the soft options contained within the Culliton report without implementing the hard options as well. The Minister for Enterprise and Employment will have to understand that Culliton is a total package and if it is not implemented in its totality, it cannot be said to have been implemented at all. All the Culliton proposals are interconnected and are part of a much wider economic policy. This does not allow for picking and choosing bits and pieces and disregarding other parts because the Government has not the courage or the vision to take the underlying decisions which may be difficult, but which are necessary for success in the future.

I will be tabling amendments to this Bill to substantially reduce the type of funding the State should be making available to NET. My party and I fully understand and appreciate that further funding must be made available to overcome the short term crisis, but I believe £42.5 million is excessive and removes the responsibility for urgent action to be taken. I urge the Minister here today to concur with this point of view thereby staving off the immediate crisis but making it essential that a long term decision will have to be taken with regard to the future of NET. If the Minister fails to do this then we are only making a bad situation substantially worse. It will be better for all concerned if the Minister takes tough but realistic action now rather than later when the situation has worsened immeasurably.

I hope the Minister will take on board what I said here this afternoon, in particular my view with regard to the type of funding he wants to make available to NET. It is not necessary to provide the volume of funding suggested by the Minister today. The type of funding I will suggest will be substantially less and will give the company, the Minister, the Department and the Government ample time to take a proper look at this company.

I welcome the Minister's statement about the National Treasury Management Agency looking at the debt NET is managing. Given the very difficult international situation with regard to interest rates and currency crises at the moment, I can understand how difficult it is for any company to manage its debts and ensure it is being cost effective. I am sure the experience of the National Treasury Management Agency will be a very great help in this regard, but that will only solve the problem in the short term; it is not making a definitive policy statement or long term decision regarding the future of this company.

There is an onus on the Department and on the Government to get off on the right footing, as we face into difficult times on a wide range of economic issues. We must establish clear markers in the marketplace. Leadership and responsibility must be seen to exist within the Department of Enterprise of Employment otherwise, the Department and all of us, will be open to being constantly harangued by every group in the country which has a case to put. Many of these cases will be genuine but, as the Labour Party has found out in its short time in Government, we simply cannot answer every call; it would be impossible to do so. We have scarce resources, and we must maximise the potential of these scarce resources, particularly given the opportunities that will now arise with regard to the Structural Fund and the Cohesion Fund over the remainder of this decade. Every decision must be carefully analysed, thought out and have a clear underpinning policy application that can bring real benefits to this country, and the real benefits will be creating jobs in the long term. We can maximise and use resources in such a way as to have real effect. I sincerely hope the Government will take that approach in the future.

Ms McManus

I congratulate the Minister and wish him well. I hope he will be successful for his own sake and for the people.

He made two points that are of serious concern. First, he has exposed the underlying effects of the Government's mismanagement of the currency crisis which has had a knock-on impact on the fortunes of NET and on other businesses around the country. Indeed, it is threatening jobs in many companies. That aspect must be taken on board in relation to this Bill.

Secondly, the Minister has indicated that this is a softening up process towards the privatisation of IFI. The sin IFI committed was that it was successful. The Minister described it as a highly profitable company, although he does not mention the jobs involved and makes no reference to the lives and hopes of workers who contributed towards its success. By way of thanks they are to be threatened with a privatisation deal which is non-specific. This is an indication that the Government is falling back on the same old worn out formula that has served to add to the unemployment figures, not only in Ireland but in other countries as well.

The reasons for the increase in share capital and borrowing capacity needs to be spelt out and understood. NET has had major difficulties mostly dating back to the construction of the Marino Point plant. It should be noted that over-runs of such magnitude are not unusual on projects of this size nor are they restricted to public enterprises. For example, the huge privately owned ALCAN development on the Shannon was to cost £326 million but ended up costing £620 million.

NET was established to provide an indigenous fertiliser manufacturing capability to service Irish agriculture. When it was set up agriculture was under-productive and badly in need of modernisation. It is important that we still retain a domestic capacity to produce fertiliser, even allowing for changes in Irish agriculture today. Indeed there is still room for growth in providing for the domestic market North and South, apart from any possibilities of export markets. The company's sales of more than £140 million in 1991 show how substantial the market is. If this Bill is a precursor to some sell-off move by the Government it should be remembered that any potential buyer for the public share of IFI would probably come from abroad, and it is most likely that it would be sales rather than manufacturing that would attract them. The jobs at Arklow and Cork are too important to be sold off at a knockdown price.

We should also remember that it is not only State companies which got into difficulties and had to receive support from the public purse. Huge amounts of money were found to salvage PMPA and a similar rescue operation, involving the commitment of more that £100 million in public money, was mounted to bail out the AIB owned Insurance Corporation of Ireland in 1985.

It is very likely that the big increase in interest rates has added significantly to the company's problems. In 1987 the then Minister said that an increase of 1 per cent costs NET £1.6 million. Interest payments in the year ended September 1991 amounted to £21 million, more than wiping out the trading profit of £12.6 million. The only people to have done well from NET and its difficulties are the professional moneylenders — the banks, with £20 million in interest payments in 1990 and £21 million in 1991 and the figures for 1992 and 1993 will be even higher.

High interest rates are creating great difficulties for all firms but they are crucifying for a company like NET which has such a high level of borrowing. Here we are again providing more public money for NET, not to allow for expansion, not to create more jobs, but simply to further enhance the profits of the banks.

When will the Government and the European Community take steps to ensure that interest rates are brought down to a more realistic level? When will some order be brought to the currency markets? How many more companies will be strangled before something is done about interest rates? Many people would like an answer to that question.

Article 45 of the Constitution pledges the State to directing its policy towards securing that "in what pertains to be control of credit, the constant and predominant aim shall be the welfare of the people as a whole". High interest rates may be to the benefit of the banks but they most certainly are not for "the welfare of the people as a whole".

The Minister will need to clarify the position regarding the 49 per cent minority shareholding in IFI held by ICI through Richardsons in Northern Ireland. In July 1990 ICI announced that it was selling its fertiliser business in the UK to the Finnish firm, Kemira Oy. This deal was later blocked by the UK Monopolies and Mergers Commission. What is the current position? Is it still the intention of ICI to dispose of its shareholdings and, if so, what are the implications for NET?

The chairman of NET, in his last report, said that any scale of ICI could have led to the restructuring of the group. He also said they were currently examining alternative proposals for such restructuring as they were reviewing all possible means of reducing the level of indebtedness in the long term. What is the position in 1993? What decisions will be made for the future? What are the intentions of ICI and NET? These important questions have implications for the future of an indigenous industry that has served Irish agriculture. They are of vital interest to workers whose livelihoods are dependent on the future of NET and IFI.

Over the years there has been much criticism of NET, and we have heard more of the same today. This has as much to do with the ideology of the right as a serious analysis of what went wrong. We should be careful not to rewrite history in a way that distorts the truth and fails to acknowledge the successes as well as the failures of the project.

Since it was set up six years ago, the off-shoot company of IFI has made an important contribution to our economic life. The joint venture company employs 750 people North and South, and has developed an indigenous industry that exports on a substantial scale. The success of IFI follows an earlier initiative when NET was set up to provide for a market that private enterprise was unwilling or unable to exploit. The first fertiliser plant was built in Arklow at the modest cost of £6 million — good value for money considering the service it has done over the years.

I speak with some knowledge on this point. I represent a county that has been devastated by unemployment. On average, County Wicklow has the eighth highest level of unemployment in the country yet we do not receive the special assistance given to Border counties nor are we given assistance from the Western Development Fund which helps western counties nor have the special designation incentives been extended to us that apply elsewhere.

Nowhere in County Wicklow has suffered more than the town of Arklow. Arklow has been brought to its knees in the last 15 years. This is not the special pleading my Progressive Democrats colleague argues against, this is reality. The loss of jobs in Arklow has been massive. For example, in the potteries, job losses have totalled 1,100; the closure of Avoca Mines meant approximately 400 job losses. We have had other closures, such as Brennan's Bakery, and the reduction in the number of workers in NET, now run by IFI, means there are just over 200 workers at the fertiliser plant.

Not very long ago Arklow was a thriving seaside town and NET enabled a whole generation of Arklow people to rear their families and to live with an optimism in the future. I can remember when the town was full of young people. You could go into any pub and people would be five deep at the counter. They may not have spent their money wisely but they certainly spent it well and Arklow boomed as a result. Now that industrial base is practically wiped out. The population of the town has shrunk and the biggest loss is the number of young men and women who have had to go elsewhere in search of work.

The recent publication from the harbour commissioners makes a strong case for EC investment in expansion of the port which is used by IFI to a considerable extent. The by-pass of Arklow is due to start and will have a knock-on effect on the commercial life of the town. Efforts are now being made to establish an industrial park and to protect existing jobs. The close relationship between IFI and Iarnród Éireann has been of mutual benefit.

In Arklow the jobs being provided by IFI are of critical importance. Since its inception IFI has successfully modernised parts of the plant. In 1992 the environmental problems that had been a cause of concern were being tackled at last. The introduction of new environmental controls will deal with most of the air quality problems. When commissioned, the new £10 million absorption tower will eliminate much of the air pollution. Consideration is being given to the environment, and rightly so. These days we are all becoming acutely aware that our environment is a finite resource and needs to be protected, but we need to recognize too that the greatest environmental threat most of us will ever have to face is that of unemployment.

Unemployment makes you sicker, sadder, poorer and more prone to an early death. Carrying out an environmental impact assessment on the hazard of worklessness might give us the complete picture when it comes to determining the factors that really do damage our health. I hope that is something the Government will take on board when they look at privatising IFI.

The establishment of NET was geared towards meeting the needs of Irish agriculture. The efforts of NET resulted from a desire to create jobs and wealth, an important aspiration and one that needs to be put at the heart of any Government programme. Since the currency crisis began last year it has become increasingly clear that whatever has been at the top of the Government's agenda, it has not been the creation and maintenance of jobs.

A naive Europeanism coupled with a failure to accept the geographic reality of our relationship with Britain — and in this example our interconnection with Northern Ireland — has led to incompetence in the management of the crisis. The recent divergence of views between Herr Tietmeyer and the Minister for Finance, Deputy B. Ahern, is just the latest example of the failure to assess correctly what has been going on. The Minister for Finance maintains that the Bundesbank did not act on his requests. I have no reason to disbelieve he made efforts to lobby for help. I am just surprised that he thought the Bundesbank would act in anything other than in the German interest.

The result of such naivety by the Government has meant job losses, the introduction of unsustainable interest rates and deep anxiety among ordinary people about their future. Today we are debating how higher interest rates are creating major problems for NET and, by implication, for the State as a whole. They are the same banks, and the same rates that are squeezing the life-blood out of the companies, public and private, up and down the country. What we are debating today is only a symptom of a more serious malaise.

The success of IFI is now proving to be a threat rather than an achievement. Privatisation will be a plum for some future investor but if it is proceeded with, it will be a bitter fruit for all those workers in Arklow and Cork who contributed to the success of our fertiliser industry over the years.

Mr. Kavanagh

This may not be the best time to congratulate you, a Leas-Cheann Comhairle, on your appointment knowing your long years of service with NET. It must be sad for you to see the company is in serious financial straits. Everyone in this House hopes whatever is needed to keep it going will be done as quickly as possible.

The Minister put it very succinctly and bluntly when he said:

In the meantime provision has to be made to enable NET to continue to meet its debts. I must stress that unless this action is taken NET will be insolvent by the end of March...

This is an urgent debate as one of our State companies is in such perilous straits. This is particularly so when over the last five years this company has made a profit of £70 million and continues to trade profitably. The real problem is the accumulated debt of £164.5 million which had accrued before the joint venture with ICI and NET took place and which was handed over to the NET company to manage. Since IFI, jointly managed by NET and ICI, had nothing to do with the management of the debt which had accrued before the joint venture, the company was able to continue to trade and maintain existing employment levels.

When I listen to somebody like Deputy Cullen telling us what should be done and what should have been done with NET, I find it very hard to believe that the Progressive Democrats were part of a coalition Government for two and a half years which could see what was happening in NET. Now they are on the Opposition benches they tell us how we should proceed and how this problem should be handled. I wish Deputy Cullen had told Aer Lingus employees his policy on privatisation, etc., and told them exactly what he thought should happen to Aer Lingus, but he did not. He called on the State to come to the aid of Aer Lingus workers.

Mr. Cullen

I speak for myself and my party.

Mr. Kavanagh

I did not interrupt the Deputy and I am here to talk on this issue.

Mr. Cullen

The Deputy is entitled to speak for his party.

Mr. Kavanagh

The Deputy does not like to be reminded of these unpleasant things.

Mr. Cullen

Do not put words——

Mr. Kavanagh

When the Deputy comes into this House he speaks for himself. He has contributed for the best part of half an hour; I am entitled to my time now.

An Leas-Cheann Comhairle

Deputy Kavanagh to continue without interruption.

Mr. Cullen

If the Deputy left my name out of his contribution we would have no difficulty.

Mr. Kavanagh

The Deputy does not like what he is hearing. When the Deputy does one thing one week and the opposite the next, it is easy to talk here about how one should approach the semi-State companies. When one is faced with——

Mr. Cullen

Scarce resources.

Mr. Kavanagh

——1,000 angry workers whose jobs are threatened——

Mr. Cullen

I lost my seat in 1989 because I had the courage to speak out. The Deputy should not speak to me about companies in the public domain when he does not know what he is talking about. The Deputy is speaking to the wrong man now.

Mr. Kavanagh

I am speaking with the right man about these policies.

Mr. Cullen

The Deputy is speaking to the wrong man.

An Leas-Cheann Comhairle

Deputy Cullen, please do not ignore the Chair. Please allow the speaker to continue uninterrupted.

Mr. Kavanagh

As long as the Deputy is here I will tell him what I think and if he does not like it he can shout all he likes. That is the situation and he knows it. That is why he is so annoyed.

Mr. Cullen

I am not annoyed.

Mr. Kavanagh

As I said, 740 workers are at present dependent on a company that is working profitably. What we are being asked to do here today is to ensure that work continues in Arklow and Cork.

I do not understand how anyone can suggest, as has been suggested by Deputy Cullen, that we consider dissociating ourselves from this activity. That would mean this State would have to find £181 million immediately to pay the outstanding debts and would have to provide continuing social welfare payments and redundancy payments for the 740 workers——

Mr. Cullen

That is what I said.

Mr. Kavanagh

——who are at present employed there. It would be worth considering how that could be done in the present situation.

The line the Minister is taking is both necessary and urgent. He has the support of my party and he will continue to have this support to maintain this company which, in the last five years, has traded profitably in a very competitive and hostile market for fertilisers.

Mr. R. Bruton

The Minister is proposing to sell the company.

Mr. Kavanagh

I will come to that. We have been told that if we do not take this action today the company will be closed by the end of March. We have been told that no definitive offer has been made for the company. The right approach is being taken and I congratulate the Minister for that.

However, I would like to ask some questions arising from the Minister's speech. I am concerned that not enough information has been given about ICI. ICI owns 49 per cent of the company and it would be reasonable for the Minister to tell us what is its attitude to the company. Is it putting pressure on the Minister to sell? Is it putting pressure on the Government to take a decision to privatise the company? In the one paragraph the Minister said that ICI are reducing their dependency on fertiliser manufacturer in the UK. We are not in the UK, we are the Republic of Ireland. Is that wish to reduce dependency also being applied to their 49 per cent share in the company? A part of IFI's operation is in the North. Therefore, one would have to ask the Minister if the decisions which affect us also apply to the subsidiaries across the Border. Has any discussion taken place with the Secretary of State for Northern Ireland about the effect what is being proposed here today may have on trading in the North? It is important for them because no doubt they are watching what we are doing here today. The employees in that part of Ireland are also concerned about the future of the industry.

It is also interesting to note that the servicing of this debt falls on NET. That was part of the deal agreed in 1987; we took over the debt that existed then. However, given ICI's 49 per cent of the share capital we must ascertain ICI's attitude to the situation. Can we alone take a decision to sell the company or put out feelers letting it be known that this company is for sale without knowing the attitude of ICI?

I would be concerned if it was felt that the only long term future for the company is that it be privatised. The company is trading profitably at present, although, even though the 1992-93 figures are not available, the company must be having a more difficult year. The only accounts available to us in the Dáil Library are for 1991, a most successful year.

Deputy McManus spoke about the importance of the company to Cork and Arklow. I believe it is also important to Belfast. The top priority of the Government and of every party during the recent election campaign was job creation and the maintenance of employment. There is not much point taking one step forward and two backwards by the loss of existing employment. Therefore it is necessary that the fears and concerns of people I met last night in Arklow that their jobs may be in jeopardy would be lifted if possible and as soon as possible.

Last night one employee asked me whether, in the event of an offer or redundancy being made, he should accept it. That was a difficult question to answer. I told him I would have to look at the Bill before us today and question the Minister to get his assurance that this employment will be maintained. The employment of the 200 workers in Arklow is our immediate responsibility as representatives from Wicklow but we are concerned about all 740 jobs. That would represent a huge loss of employment, a huge loss of productive output and would inflict major damage on the agriculture industry if anything happened to this company.

I listened to Deputy Bruton — he will probably tell me I am not supposed to question what he says in the House but I know him a little longer than Deputy Cullen and that he is not as touchy—

Mr. Cullen

The Deputy was misquoting me.

Mr. Kavanagh

The Oireachtas Joint Committee on Commercial Semi-State Bodies looked at this industry and I hope if problems like this arise, in the future that committee could be used and that the responsible Ministers would be involved in the discussion so that we would have a regular overview of semi-State companies.

Mr. R. Bruton

They will not let us look at the accounts.

Mr. Kavanagh

I am suggesting that it would be useful——

Mr. R. Bruton

I agree with the Deputy.

Mr. Kavanagh

In view of the debate which will take place on Thursday and Friday, I hope we will be able to make the suggestion that the committees of the House should not only have access to the up to date accounts but would also have Ministers present to give their opinions first hand. That would remove the pressure of having to find Dáil time for a debate when real problems have to be faced and Bills have to be rushed through. A continuous overview by the committees would be a far better way to deal with our semi-State bodies and would keep everyone concerned up to date.

It is not the best way to proceed when people who have given a lifetime service to NET, now IFI, in Arklow are concerned about what is going to happen next month or the month after, and if they will have their jobs. We need to ensure that people engaged in productive work are guaranteed that their jobs are safe.

The situation in Arklow has been briefly and accurately outlined by Deputy McManus. In its heyday NET had over 1,000 employees in Arklow. Because of the rationalisation over years, as the industry had to meet the pressure of competition here and from outside, the workforce has diminished to the still sizeable number of 200 workers. This is still a big and important industry in Arklow where we have seen so much economic devastation over the last ten years.

It was necessary for the Government to move with speed and bring in this Bill. I applaud them for what they have done, although there are unanswered questions about the future. I hope the Minister will assure us that this company is not up for sale to the private sector, that there is a future for it and that this Government believes there is a necessity for a fertiliser company to service our biggest industry, agriculture.

We listened today to a Minister who is concerned about the situation, who wants to be helpful and who wants to see employment maintained in Arklow and in Cork. That is what I take from the Minister's speech. I hope in his reply he will give assurances, not only to those who represent the workforce in Arklow but also to those representing the Cork workforce, which is much larger, that the people who have given a lifetime service to this company will have a future in this industry.

Mr. M. Ahern

I congratulate you Leas-Cheann Comhairle on your appointment. I hope your tenure will be long and fruitful. This is a Bill I hoped would not come back to this House for many years. We must provide funding for NET. In Cobh, where I come from, we have one of the most efficient, up to date fertiliser plants in Europe, which has been operating efficiently and profitably for the last number of years. The holding company, NET, has not had favourable results over the past five years due to the circumstances, outlined by the Minister — the downturn in fertiliser profits and increases and changes in interest rates, the dollar-pound exchange rates and international oil prices. The about-turns in those elements have worsened the debt position of NET.

Despite that fact, what I am concerned about are the jobs at Marino Point, in Cobh, in Arklow and throughout the country. There are more than 700 people dependent on the fertiliser industry for jobs. Not only must we take into account the 700 people directly employed by IFI but we must count those who are dependent on spending by NET and IFI in Cobh and surrounding areas. We must also take into account Iarnróid Éireann, the hauliers and other ancillary industries which depend on IFI. In that context the Minister's proposals are acceptable.

We could look at the reasons for this problem but it all falls back to the overrun in the construction of the plant in the late seventies. It would be advisable and educational for Deputy Cullen to see who was in charge of the Department in the late seventies.

IFI supplies the agriculture industry. We are mainly an agricultural country, whether it is our prime industry, or downline work in agri-industries. If we were to lose IFI in Arklow and Cobh, Irish farmers would be at the mercy of foreign companies who would exploit that at will. It is incumbent on the Minister and the Government to ensure that no element of our industry is put at the mercy of foreign companies.

In this case we have a profitable company in Arklow and especially in Cobh which deserves to be kept open. I urge the Minister to carry out the plans he has outlined here this afternoon to ensure that the plants at Marino Point in Cork and Arklow are kept open and that the 700 plus workers are kept in permanent and profitable employment.

Mr. E. O'Keeffe rose.

An Leas-Cheann Comhairle

Excuse me, Deputy, I am calling Deputy John Fox after which I will be calling Deputy O'Keeffe.

Mr. J. Fox

First, let me offer my congratulations to you a Leas-Cheann Comhairle, on your appointment. I was not in the House on the day of your appointment but as my constituency colleague, I would like to express my sincere congratulations on your appointment and wish you well in the years ahead in that role.

I support the Minister for the assistance which hopefully this Bill will provide for IFI. As previous speakers have said, there is no doubt that the fertiliser industry, and the farming industry as a whole, have suffered a downturn in recent years and IFI has felt the brunt of the storm in reduced input costs by the farming community and therefore reduced sales by the fertiliser companies.

It is incumbent on us to ensure that we remain in control of our destiny as far as the fertiliser industry is concerned. In too many fairly small industries, such as the fertiliser industry, we have given the impetus to foreign based companies to supply our needs. There are many instances of how we export jobs. This is happening in other areas but I am referring specifically to Wicklow because IFI is based in Arklow. In too many instances we do not give the necessary backing to our great natural resources which on this occasion is IFI.

I would like to lend my voice to that of the previous speakers, to support the Minister's plans to help the Irish fertiliser industry and maintain the 700 people employed in Marino Point, Cork and in Arklow. I believe the upturn in farming is around the corner and that will mean an upturn in the fertiliser industry and a return to profitability.

I congratulate IFI for their efforts in maintaining standards, particularly in the area of environmental control. That industry can be environmentally difficult, to say the least. IFI has done everything that has been asked of it, particularly in the Arklow plant, to ensure that the standards the EC and the Irish Government require have been met. They are to be congratulated on that. I too support any steps the Minister takes to maintain and support our fertiliser industry in Ireland.

Mr. E. O'Keeffe

I welcome the Bill which increases the share capital of the company by £22.5 million, not a very substantial figure when you take into account the capital base of the company. It increases the guarantee of borrowings by a further £20 million.

This company has been subject to a great deal of controversy since established in Arklow in 1962. The real controversy began in 1977-79 with the setting up of the Marino Point plant in Cobh, County Cork. That was the first major industry manufacturing chemicals in the Cork area. During its pioneering days it was seen as a model industry. Overruns in capital expenditure have been a problem but imported competition has been one of the main reasons for its loss-making on several occasions. We are in a fluctuating business where Third World countries can often undermine manufacturers and create a world surplus.

The capital cost of the Marino/Cobh plant was in the region of £137 million and there was a huge overrun in capital costs. This was the main reason for the company's failure to make a profit in the early years.

It had to be bailed out by the Oireachtas in 1989 with another £100 million, £50 million by way of equity and £50 million in State guarantees on borrowing. Some time after that it ran into further difficulties and a joint venture was proposed in 1987 — 51 per cent of the shares held by NET and 49 per cent held by ICI. I believe it was a good move by the Government to get an experienced partner for NET. ICI brought in international expertise to market the product and introduced new product technology which produced new types of fertilisers.

The use of natural gas has further lowered the cost of production. I appreciate that it is provided at a price below that paid by other users. This is an efficient form of fuel; it is clean fuel, and provides a saving in costs. IFI is an excellent employer in the Cobh area and is important for the Cork region generally.

The effects of the currency crisis on NET and IFI are frightening. We have to examine the currency question. My view on the devaluation issue, although many people may disagree with me, is that, as a country that has to export, we have to be vigilant. At all times we have to be cost effective. The UK is our nearest market and while 40 per cent of our business is with the UK our exports to the UK are mainly foodstuffs.

The fertiliser industry is contracting with less fertiliser being used by Irish farmers because of the cutback in livestock numbers and cereal growing. Circumstances have changed considerably since NET was established. We have seen a major contraction in agriculture because of new technology, quotas being imposed and cutbacks in production. For the first time, terms like "set-a-side" are being used. That is going to create further problems not alone for NET but also for other fertiliser manufacturers. We are seeing a change in the structure of ICI in the UK. I understand the company is to be split in two, chemical and otherwise. I would like to know what effect that will have on the existing company.

I compliment the company in the Cork Harbour area for a clean environment where little is heard of spillages or leakages. That is a great tribute to the existing workforce and management.

It is important to maintain employment in the Cork area. The last thing we want is change that would bring about any type of redundancy. I welcome the Bill for that reason. The company must, of course, survive otherwise our agricultural industry will not be competitive. If we have high cost fertilisers the agricultural industry will suffer. IFI has to be vigilant in the marketplace. It has to deal with competition as the market is shrinking not alone in this country, but worldwide.

Over the years the main product in the Cork area has been urea for the agriculture industry and calcium ammonium nitrate from the Arklow plant. The company has broadened its base of manufacturing product which has helped it substantially.

ICI's involvement has also given us an input into Richardsons in Belfast which is part of the original ICI group which brought onto the market two very prestigious brands of fertiliser — Pasture Sward and Cut Sward a great deal of which are used in the southern part of the country. There has been increased use of net nitrogen in those fertilisers, and this cocktail has proved very popular.

I welcome the Bill and I wish NET and IFI every success. I congratulate the Government on coming to their rescue because it would be very difficult for NET to continue without this assistance. I congratulate the Minister on his initiative and I wish him well.

Minister of State at the Department of Enterprise and Employment (Mr. S. Brennan)

First, I join all Deputies in congratulating you, a Leas-Cheann Comhairle, on your new post and wish you every success and happiness in the years ahead.

My thanks also to Deputies opposite, from all parties, who contributed to this Second Stage debate. I listened very carefully and I value greatly what they had to say. Often it does not appear that Ministers do that, but it is important to do and to say we do it. I have learned from listening to the debate today.

It is important that I say a few things very clearly lest the wrong impression goes from this House. I am concerned that in the reporting of the debate, for example, the workers at IFI might get a wrong impression. It is not that Deputies have said anything incorrect, but the wrong impression may have been created by what a number of Deputies said.

Irish Fertilizer Industries Limited is a very competitive and profitable company. It is not under any threat. The workforce need have no worries about the present and, as far as one can judge, the future of Irish Fertilizer Industries. In response to Deputy Bruton, as I understood it, IFI has a three year strategic plan which is reasonably optimistic — it cannot go beyond that because of the uncertainty of gas prices — and the company is secure.

It is important to understand and distinguish between NET and IFI. IFI is sound and is doing good business, NET is the one with the difficulty. To pin it down, Irish Fertilizer Industries Limited in the year ending September 1991 had a turnover of £141 million, an increase from £133 million the previous year. In that year it had a profit of over £10 million, compared to a £4 million profit the previous year. I want to tell the workers in IFI that they are working for a very profitable, developing and well managed company that has a strategic plan. It is important to say that very clearly today lest there be any misunderstanding.

As the House is probably aware ICI has been winding down its fertiliser business in the UK. It is no secret that they would be interested in disposing of their shares in IFI at the right price. However, they have no intention of withdrawing from what they regard as a very profitable investment, just to get out. They take the view, as most international companies do, that as it is a very good investment, they will seek a very good return on it and if they do not get it, they are not interested in pulling out. I understand they are committed to the company and there will be no shabby treatment of IFI by ICI or NET and the company can be assured of that.

I will spell out the position. NET is now a holding company; it is not trading as such. There is no bailing out today of IFI and I will pin that down firmly. So far as bailing out is concerned, we are bailing out NET, because of a number of elements including managing debts, oil and the currency problem, the gas price and profits from the fertiliser company in the form of dividends. There are a number of volatile elements which affect NET. NET has two incomes; the dividends it receives from IFI and its sale of gas to IFI. It has two expenditures; it buys gas from Bord Gáis Éireann and pays the interest on its enormous debt. As Deputies know, that debt stayed the responsibility of NET and allowed IFI to carry out its operating business.

What we are doing here today is expensive but it is purely a financial measure. We are not bailing out an operating company. We are not making up for poor trading performances, we are not concerned about the price of fertilisers, we are straightening out matters and allowing NET to continue to deal with those four elements which make up its profile.

I was asked by Deputy Cullen about potential purchasers. Let me say again, very clearly, that the State has taken no decision to dispose of its share in IFI. The reality is the State has a share in IFI. — a very valuable share — and like any shareholder from time to time it has to look at its assets and consider whether holding these assets is better than disposing of them and clearing its debt. Whether the State took the final decision to dispose of them, would not, in my view, affect the company. Whether it is owned by the Irish taxpayer or by, arguably, an international fertiliser company with a very high performance should not affect the worker in IFI. It really is a matter of ownership at that stage.

I want to stress that no Government decision has been taken. I regard it as an option we have to look at very carefully, and that option is being looked at. In that regard, a number of firms have been talked to, but there have been no definite offers on the table. I want again to stress that the Government would not treat something as important as this in a shabby manner. The option of holding the shares will be looked at and the option of disposing will also be looked at. I want to stress that they are options and we would not treat any company in a shabby manner; that is not the approach of the Government.

Deputy Cullen also asked about the sums involved. It is not a once off £42 million. We are talking about enabling money, which may or may not be drawn down. It is a matter of judgment whether I come back in a month's time or once a month for 42 months. That is the amount which will give them flexibility to carry on with their business. I accept the Deputy's view that it could just as easily have been £32 million but our judgment is that rather than have to come back to the House on a regular basis, it is best to deal with it now. This is our estimate of the funds that will be required and, as I said, that does not mean this money will necessarily be drawn down.

Deputy Richard Bruton asked me about the gas price. NET is dependent on its profits from the sale of gas to service its debts and if that source of income is taken from the company the Exchequer will have to make up a shortfall. I do not think it is clear if there will be better uses between now and 1999 for the 210 million therms of gas consumed annually by IFI other than, for example, power generation by the ESB. If the ESB supplants all generation by gas generation, the Exchequer loses the excise duty on the oil. The cessation of gas supply to IFI for what might be, at best, only marginally beneficial in the context of gas prices could have substantial damaging consequences on IFI. It would have an adverse impact on our balance of payments and I think would result in a loss of credibility in long term agreements entered into by the State. We should remember that the existing gas arrangements are cast iron legal requirements, fully signed. We are contractually committed to the gas arrangement, I think, up to 1999, so there is not much point in us debating them.

Mr. R. Bruton

Will the Minister indicate whether there will be renegotiations in the context of what he proposes?

Mr. S. Brennan

If there is any change in the structure of IFI — the present structure, as the Deputy knows, is the ownership by NET and ICI — obviously a key part of that new structure would be the gas contract. But, there is a gas contract to which we are legally committed and we cannot touch it until 1999. It might be no harm to review it and discuss it but the bottom line is that we are stuck with it.

Mr. Cullen

It still does not make it a good deal.

Mr. R. Bruton

Should it be transparent as Culliton recommended?

Mr. S. Brennan

On that point, NET is a holding company. It buys in gas and sells gas and it has to deal with other customers. If you exclude the excise element which the ESB pay on oil the amount is only marginally different from the price at which the ESB buys the gas. Successive Ministers on all sides have not put a very firm figure on it because there are a number of customers involved. If the Deputy feels the Government has options, even of making it pay the exact price, and if he feels that could be helpful to somebody, then it could be considered, but the view is that it is not particularly helpful to publicly declare the figure because there is a commercial relationship involved.

Mr. R. Bruton

It is recommended by Culliton, which seems eminently reasonable.

Mr. J. Bruton

The Culliton report confused the gas price paid by NET to BGE and that paid by IFI to NET. NET buys and sells gas, it makes a profit on the difference; and the difference is a State profit used to support the NET debt. To an extent the profit on the gas goes directly to the Irish taxpayer by reducing the NET debt. The argument about the lower price is academic. There is a lower price but the profit is transferred to NET. NET makes a profit by selling on to IFI and uses the profit to service the debt. This argument has been going on for years. If all of the figures were made public that would be obvious.

Mr. Cullen

It is still a bad deal.

Mr. S. Brennan

We are into the argument of what is the best use of gas and whether it should be used more by the ESB side or whether it should be used to develop this industry. At the time the deal was concluded, the fertiliser industry was in bad trouble and the State brought all resources to bear in solving the problem for NET. It was quite an imaginative solution at the end of the day taking the debt out into NET, trying to service separately and bargaining with the gas contract. At the time the only option to the State using its resources would have been for the State to work away from NET.

Mr. Cullen

The point is that the taxpayer was not aware of the £250 million Culliton estimated was the effective hidden subsidy that went to the conglomerate NET/IFI. If the taxpayer had been aware of that, different decisions might have been made. It is the concealing of the facts that is at stake here.

Mr. S. Brennan

The only concealment is the gas price which successive Ministers on both sides of the House over many years have declined to give for commercial reasons. The only subsidisation involved is the subsidisation of NET and some of that subsidisation is, of course, coming from BGE because of the profit it makes on the gas. You can argue that NET should not make a profit on gas price, that BGE should be left its profit, but then you would have to turn around and support NET directly with Bills like this coming to the House. It is six of one and half a dozen of another.

I take the Deputy's point about transparency. It is something I will look at closely but, I have only come to this Department in recent days.

Mr. Cullen

The point about alternative strategy will have to be looked at.

Mr. S. Brennan

I want to be clear about that. IFI has a strategy to develop its own business and that is all right. A strategy for NET is really answering the questions, what is going to happen to interest rates, what is going to happen to oil prices and what is going to happen to gas prices? When you answer these three questions, you can write a strategic plan for NET on the back of an envelope because there are only three or four people down there. All that it is doing is paying the debt. Therefore, you do not need a glossy five year plan with the Minister's picture on the cover.

Mr. Cullen

I know that. One cannot separate the two entities but it appears one has no relationship with the other. I take all the points the Minister made, and I even made them myself. I understand that but you cannot deal with them as if they are totally separate.

Mr. S. Brennan

They are not totally, but IFI has a plan to develop. The only real connection is that dividends come from IFI into NET. That is an income from NET and then NET, in turn, sells the gas back. Yes, they are connected in those ways because they have a commercial relationship and, of course, NET is a 51 per cent shareholder. They are connected legally and they are connected in business but IFI has its own programme. We must have a clear strategic view of NET but you cannot have such without answering the questions I have posed, regarding interest rates, gas and currency movements.

Mr. Cullen

We do not know the structure of IFI in terms of the arrangement between ICI and NET as the two shareholders in IFI. What arrangements exist in the context of that company?

Mr. S. Brennan

Between which side, Deputy.

Mr. Cullen

In IFI itself, where you have 49 per cent held by ICI and 51 per cent by NET. We have no figures or details on the arrangements in that company between the two holding companies.

Mr. S. Brennan

Most of this is public knowledge. The IFI accounts are available in the Companies Office. Data on their turnover and their profits are there. I have given the House the turnover and profit figures already. They paid a dividend of £7 million in the year to September 1991 and the ownership structure is known. I do not know if there is much more that can be published. The financial information pertaining to IFI is public knowledge and it is there.

Notice taken that 20 Members were not present; House counted, and 20 Members being present,

Mr. S. Brennan

The situation is that NET is a holding company; it is there to manage a core debt, following the events I set out in my speech to the House and IFI is doing very well indeed.

To refer to a point made by Deputy McManus, I would like to tell her that Irish Fertilizer Industries has recently invested £10 million in a new nitric acid plant at Arklow which will be completed in May 1993. I would emphasise, again, now that the Deputy is with us, the fact that IFI is a sound, profitable company. It has good plans, it is well run and there are no fears, either on the part of the Government shareholder of ICI shareholders as to employment of future prospects. It is doing very well and I would like the workers in the plants to know that.

NET's problems are separate. They are to do with servicing a debt and with the financing of the built-up hard core debt which has now become more difficult because of a number of elements to do with oil, currency, gas prices and profits. I wanted to make that point to the Deputy because it is important from the point of view of the workers that they understand there is no threat to IFI; it is not involved in this legislation directly.

Mr. McManus

I appreciate that but the future of the plant under the privatisation deal is a matter that concerns the workers and that has not been mentioned in the Minister's speech.

Mr. S. Brennan

I replied to that very briefly by saying there is no decision. There is but one option and the Government as a shareholder, like all shareholders, will look at its shareholding and see whether it is in the best interests of everybody involved to dispose of those shares or to hold on to them. There is no decision on that. It is an option and one we would have to look at because if you have investments in a company it may be an option to do something with them rather than leave them there when they are very valuable and then turn around, and take Irish taxpayers' money, as we are doing today, to fund a debt which we could reduce if we had some funds from the shareholding which would not affect the operation of the company. It would affect the ownership of the company but it would not affect the operation of the company.

I would like to thank the Deputies for their contributions on Second Stage. I have responded as best I could to some of the points raised.

Question put and agreed to.

An Leas-Cheann Comhairle

Have you a date for Committee Stage Minister?

Mr. S. Brennan

I am totally at the disposal of the House in this regard. My understanding from my own Whip is that Committee Stage is down for tomorrow. I would be happy to proceed to Committee and Report Stages at this juncture if Deputies opposite were willing to do that but I do not want to rush the Deputies. It is a relatively straightforward Bill. I hope I have explained the various aspects. But if Deputies wish to put down written amendments then I would wait until tomorrow. Deputy Cullen mentioned he may have an amendment.

Mr. Cullen

The amendments have been tabled but have not been circulated yet. They will be circulated later.

Mr. S. Brennan

If the Deputy does not wish to proceed with those——

Mr. Cullen

I wish to proceed.

Mr. S. Brennan

I will not press the matter.

Committee Stage ordered for Wednesday, 17 February 1993.