Dáil Éireann debate -
Wednesday, 20 Sep 1995

Vol. 455 No. 8

Sale of Irish Steel Limited: Statements.

Minister for Enterprise and Employment (Mr. R. Bruton)

I welcome this opportunity to inform the House about the proposed sale of Irish Steel Limited to ISPAT International. I was particularly pleased to visit Cork on 6 September last to sign the contract for sale.

As this House will be well aware, Irish Steel's troubles have been going on for decades. Successive Governments have invested substantial amounts of taxpayers' money into the company with no return on the taxpayers' funding. Irish Steel has only made profits in three years out of the last 20 and these profits were never of sufficiently large amount to protect the company in its years of poorer performance. Its consolidated profit and loss account to the end of June 1995 shows an accumulated loss of some £145 million. The experience over the years has demonstrated that the State was far from the ideal partner.

We have seen employment levels in Irish Steel drop from a level of over one thousand two decades ago to a level this time last year of 561. In the trading year 1993-94, Irish Steel was losing well over £1 million a month and total losses for the year amounted to over £20 million. Figures for the year to the end of June 1995 show further losses, although on a scale considerably less than the previous year, with losses approaching £6 million.

Irish Steel is a small stand-alone company within a much bigger European and worldwide steel industry. The international steel market that the company serves is cyclical and in the early 1990s the steel industry experienced a downturn in both price and sales volumes. Selling prices were lower than they had been for 20 years and raw material prices were high, leading to immense pressures on margins. Most steel companies in Europe found the going tough and as a result, with the support of the European Commission, a massive restructuring of the steel industry in Europe was undertaken. Following the lead taken in Europe and in the light of the huge losses being made — £13 million on a turnover of £58 million in the year ended June 1993 — it was imperative for Irish Steel to implement cost reduction and restructuring measures.

During 1993, the company unsuccessfully tried to negotiate a cost reduction package with its workforce. A new viability plan was drawn up in early 1994. This was an absolute precondition to the very survival of the company. This plan provided for, inter alia, a reduction of 205 workers, the introduction of new totally flexible work practices, the achievement of efficiencies and a pay freeze. There were extreme difficulties in reaching agreement with the unions on the implementation of the plan. Industrial relations difficulties beset the company throughout the summer of 1994. Following difficult negotiation — that saw the company on the verge of closure on a number of occasions — each of the trade unions and all employees in Irish Steel indicated their acceptance of the company's survival plan. The plan allowed for cost improvements and savings of £8.8 million per year. I am pleased to acknowledge the tremendous sacrifices and efforts made by the workers of Irish Steel in the implementation of the viability plan.

This survival plan has been vital in securing a prospect of achieving a viable future for Irish Steel. Without the achievement of cost savings under the plan, it is unlikely that any company would have been interested in Irish Steel, but there were considerable doubts that the company could achieve and sustain viability on its own. For example, the European Commission and others expressed considerable reservations about the ability of Irish Steel to provide adequately for the next downturn in steel markets.

Faced with the high losses that had occurred in 1993-94 and the implementation of the survival plan notwithstanding, Irish Steel was still not in a break-even situation as a stand-alone enterprise. The board of Irish Steel submitted, on 28 November, 1994, a final viability plan to return the company to profitability within three years. This plan included a request for £50 million, including £40 million in equity and £10 million in guaranteed borrowings.

The Government, following discussions with the European Commission, was faced with three options: to seek EU approval for the £50 million State aid package, to close Irish Steel, at a conservative cost of over £40 million, or to find a suitable strategic partner who, with experience in the wider international market place, would be able to bring their knowledge, marketing and production resources to bear on Irish Steel and turn the company's fortunes around, so that it would have the strength to prosper in the market.

In the event, the Government decided, in February 1995, that negotiations with the European Commission for approval of State aid to Irish Steel should be on the basis of £50 million and negotiations could be opened for the possible sale of shares in, and control of, the company. Indeed, the European Commission has notified us that it is in the process of opening a legal procedure, to be published shortly in the Official Journal, against Ireland for giving a Government guarantee on a loan advanced by the ACC in 1993 and for the proposal to fund all of the £50 million restructuring plan. However, those proceedings will be dropped if the current proposal to sell Irish Steel to ISPAT is approved by the Council.

Following the Government decision, an application for State aid approval was lodged with the European Commission and I appointed Investment Bank of Ireland Corporate Finance Limited to act as advisers on the sale of Irish Steel. Five parties were quickly identified as being interested in purchasing part or all of Irish Steel. Applications were made by each of these five companies in the first round of offers. It is common knowledge that these five companies were ISPAT International, Riva, Aicher, Nippon Denro and Nucor/Yamato. Each of their offers was weighed up on its respective merits. In some cases companies were even invited to improve on their offers. All the offers, save one, were for the purchase of 100 per cent of the shares in Irish Steel.

A short list of companies was drawn up after the final first round offers were received and a number of companies were invited to submit further more detailed offers. Following receipt of these further offers, the Cabinet subcommittee, comprising of myself, the Minister for Finance and the Minister of State with responsibility for science, commerce and technology, which had been formed to oversee the sale process, selected ISPAT International, following recommendations from my Department and the advisers, as the company which would be granted exclusivity of negotiation to purchase 100 per cent of Irish Steel. It was considered that ISPAT International had the necessary experience in turning around steel companies. The financial commitments they were proposing were the strongest of the remaining bidders.

During the summer ISPAT concluded detailed due diligence with their own professional team, in co-operation with IBI Corporate Finance Limited, Irish Steel Limited, and my Department. The due diligence process was conducted on the basis of the normal process of disclosures and representations made by Irish Steel, in the main, but also by the State, on foot of which ISPAT decided to purchase Irish Steel. Negotiations with the company continued during and after this process and led to the conclusion of the contract documents.

I would like to take this opportunity to give a brief pen picture of ISPAT International. It is a multinational corporation, founded in India, with manufacturing facilities in Mexico, Canada, Trinidad and Tobago, Germany, the USA, the UK and Indonesia for the production of steel and related items. The group is the largest producer and consumer of direct reduced iron, that is iron produced from iron ore, in the world. It is also one of the world's largest producers of liquid steel, employing a total of 6,500 producing more than 6.5 million tonnes worldwide. The total assets of the group exceed US $3 billion and annual revenues exceed US $2 billion. Most of ISPAT's acquisitions have been former state-owned steel-works in the process of privatisation and it has a proven track record of turning around all its major acquisitions, usually within a year of purchase. This is rapid by steel industry standards.

Irish Steel will be able to benefit from the experience the new owners will be able to bring to bear and the economies of scale that also derive from a group of such size. The Government is satisfied that, through the proposed sale of Irish Steel to ISPAT International, it has achieved the best possible deal for the State, the company and for the workers of Irish Steel.

I would like to turn to the details of the deal to which the Government gave approval on 5 September, the contract for sale of which I signed on behalf of the State on 6 September last. ISPAT International is to buy Irish Steel for a nominal sum of £1. The sale will be finalised following the receipt of European Coal and Steel Community approval. The agreement will involve a certain level of expenditure by the State and by ISPAT International. The State has agreed to pay £10.636 million to Irish Steel Limited and ISPAT will invest £5 million in working capital into the economy immediately following EU approval. The State's contribution of over £10 million includes provisions to provide for charges and expenses identified by ISPAT in the due diligence process, to fund a deficit in the staff pension fund, to fund necessary environmental and other remedial works and a small matching contribution towards an ECSC staff training grant.

This purchaser is also committed to a significant level of capital expenditure. This will see investment of £25 million over the next five years, allowing Irish Steel to produce products more efficiently and thus more profitably than at present. These funds will be spent on the re-equipment of the mill and the melt shop. About half of the capital spend will, it is planned, be devoted to enabling Irish Steel to make higher grade, added-value raw steel. Ultimately, under ISPAT, Irish Steel will produce a more extensive range of finished steel products, which will, because of the higher grades of steel they will be able to make, add to the value of output. In addition, ISPAT has agreed to maintain production at least at present levels.

Furthermore, the deal provides undertakings from ISPAT to take over all loans, debts and liabilities of Irish Steel with the exception of an old Government loan of £17 million made in the mid-1980s. That will be extinguished by the Government as part of the sale.

Among the issues at the forefront of negotiations has been the Government's concern for the workers of Irish Steel and the protection of their jobs and rights in the new Irish Steel.

Under the deal, ISPAT International has entered a contractual commitment to employ a minimum of 331 full-time workers in Irish Steel for the first five years of their ownership of the company. This number was arrived at, as 331 is the level of employment that Irish Steel would have attained under its agreed restructuring plan as a result of some further investments. ISPAT International has also agreed to honour in full all commitments of Irish Steel with regard to labour contracts and pension plans.

I am confident that Members of the House will agree that this situation contrasts very favourably with the situation 12 months ago when the plant was on the verge of closure with the likely loss of all employment in the company. The contractual commitment with ISPAT International also provides that it will pay to the State specified liquidated damages in the event that the number of full-time workers falls below 331. There was understandable concern among the workforce of Irish Steel and their trade unions that the sale of the company would be prejudicial to their interests and that the job guarantees were not real. I have assured the unions that the guarantees given by ISPAT are real and substantial and I am satisfied that the trade unions are now fully committed to a new Irish Steel in the full ownership of ISPAT International.

In the period between the agreement and the EU approval process, a new interim management structure has been formed to oversee the daily operations of the company. This will allow ISPAT to start work immediately to bring Irish Steel back to profitability, a goal which 12 months ago would have been almost impossible. Already, the signs are that Irish Steel will be in the black for the first time since 1990. The position is now much brighter and more hopeful than before.

This deal which we agreed with ISPAT International is only the first step on the road to privatising Irish Steel, albeit a major step down that road. Now that the Government has secured what we feel to be the best partner for the company, its next task is to receive the consent of the European Commission, the Council and the unanimous consent of member states on the Council of Ministers to this deal. On the basis of the contractual agreement between the State and ISPAT International, my Department has submitted a revised State-aid package to the European Commission. This supplants our earlier application for a £50 million State-aid package.

A number of parties are unhappy that we have found a partner for Irish Steel. They were quite confident they could have blocked the approval of the 1994 restructuring plan that required a further £50 million investment. Deputies will be aware that it only requires one dissenting voice in the Council to block it.

State aid to steel mills is banned by the European Coal and Steel Community Treaty. The provisions of the treaty for granting a derogation are the strictest in European Union law in enforcing that ban. It is enforced to ensure that operators, particularly state-owned operators, cannot get unfair advantage over commercial operators through gifts of state funding. That is why complete unanimity in the Council is required on a positive recommendation to the Council by the European Commission.

Those who oppose us were confident that they could block Irish Steel's plan because they believed the company would require continuing State support in the years ahead. They are unhappy because the commitments ISPAT are making to Irish Steel are the strongest and most convincing evidence that this can be a viable, commercial operation. Those parties would be so much happier if they could argue that this was not a real privatisation, and that it will go on needing State cash. A continuing State involvement would have most assuredly suited them for this purpose. Already, I know there has been lobbying in an effort to make out that the State continues to be involved even after the sale.

My Department, with my full support, is pressing the case with the European Commission and the member states for their full and unanimous agreement for the State-aid package to Irish Steel and its full privatisation. At present discussions are taking place with the EU Commission. The Commission's consultants must satisfy themselves that ISPAT International's plan for Irish Steel meets their criteria for viability. It must be proved to the Commission that the company can produce the income and cost structure that would ensure it is self-sustaining. The Commission must satisfy itself that the gross operating margin will be adequate, that the depreciation provision is reasonable, that State subsidies do not result in an unfair removal of financial charges and that the return on investment will be reasonable. If they are not satisfied on these matters, they will not make the necessary recommendations to the Council.

My Department is currently working with the Commission and I am confident we can convince them that the ISPAT deal meets their criteria so that they will make the necessary recommendations to the Council. The next meeting of the Council of Industry Ministers is scheduled for 7 November next. I will push hard for the Council's approval of the Irish Steel deal at that meeting. Once the EU approval process is completed, I propose to introduce the necessary legislative proposals to enable the sale to be concluded.

This landmark achievement in the history of Irish Steel has by no means been an easy achievement. Many people have worked hard for this deal, not least Irish Steel itself. The Government is committed wholeheartedly to this agreement with ISPAT International. It is the best possible deal for the company and the Government is confident of a prosperous, profitable future for Irish Steel. I thank the board and the employees of Irish Steel for the hard work they have put into getting the company to the stage where it is possible to attract such a suitable purchaser as ISPAT International.

Mrs. O'Rourke

I understood from the Order of Business that this item was to be taken at 2 o'clock. I was not notified that it was to be taken earlier. I was at a meeting and I saw the Minister speaking on the Dáil monitor. I apologise for any inadvertent discourtesy, but I was following the Order of the House.

An Leas-Cheann Comhairle

I must put it on the record that the Order of the House was rigidly adhered to. There was an indication that the previous item would continue until 2 o'clock, but that did not happen. Efforts were made to contact you and I regret that you did not receive such notification.

Mrs. O'Rourke

I was on the fifth floor with approximately 100 people. I do not want an argument with you, a Leas-Cheann Comhairle, but in many cases if a time is printed on the Order Paper for such an item, the House adjourns until that time. That has always been the case, but it seems the precedent can be flouted.

An Leas-Cheann Comhairle

The correct procedure was ahered to.

Mrs. O'Rourke

I wish to put my point of view on the record.

An Leas-Cheann Comhairle

I want to do likewise.

Mrs. O'Rourke

I requested this opportunity to discuss Irish Steel when the Minister for Enterprise and Employment, Deputy Richard Bruton, announced the deal on 6 September. I asked our Whip to get in contact with the Government Chief Whip in this regard. I am glad the Government agreed to my request for a discussion on this issue on the Dáil's first sitting day after the recess because it is a matter of great importance, both historically and commercially.

I requested a debate because the sale of Irish Steel is a major issue. It represents the privatisation of a State company which was founded almost 50 years ago. Such privatisations of major State companies do not take place on a frequent basis or in the same manner as the sale of Irish Steel with the State selling its shareholding all at once. For example, the sales in Irish Life and the Irish Sugar Company were on a gradual basis.

The sale of Irish Steel also takes place against the background of the commitments in the Government's programme which state that State assets will not be sold except where it protects employment. I agree that vigorous attempts have been made to protect such employment in Irish Steel and it is in the long-term strategic interest of the company and its shareholders. The programme also states that the Government will retain majority State ownership in those companies and that change in State companies will be managed in the best interests of the employees.

I have stated publicly that there is broad agreement in my party with what the Minister has done. My party was part of a Government which lived through many tribulations and vicissitudes in Irish Steel. However, such broad agreement does not preclude us from asking questions. The purpose of democracy is to give Governments and Opposition the opportunity to ask those questions in the Dáil. Political and economic commentators have said that it is great to see the end of what has been debated for so long.

They ask what is the point of troublesome Mary O'Rourke or anybody else asking questions in the Dáil today? I say clearly that I have a right to ask questions on behalf of my party and on behalf of the taxpayers and voters who contributed considerable amounts of money and I will continue to do so.

Not least of the reasons for discussing the sale of Irish Steel is the fact that the company has been a major part of the State for 50 years having been established in 1947. It is interesting to read about it in the Dáil official reports of that time. Its role was to supply the domestic and export markets and it quickly became a major employer with over 550 people employed up to June 1993 when the last rationalisation plan began. As we all know such things are cyclical and Irish Steel was no different from any other producer in Europe. It enjoyed good times but many bad times.

In the years after its establishment, Irish Steel enjoyed reasonable success but, as the Minister said, not very dramatic success in any one year. There were boom times during the 1950s and 1960s which were the great construction eras. However, in the 1970s difficulties began to emerge. Despite the investment by various Governments of £185 million between 1980 and 1993 — that is a significant amount of money — Irish Steel recorded losses of £135 million. The investment in Irish Steel was substantial, representing several times the IDA's annual budget.

The biggest single investment made by a Government was in the 1985 to 1986 period when £24 million was invested, £18 million of it in loan form. That is the £18 million referred to in the Minister's speech and to which I will return. The current Taoiseach was Minister for Industry and Commerce when this major loan was given and he was succeeded in 1986 by Deputy Noonan, the current Minister for Health. They will both remember Irish Steel and its trials and tribulations. The rationalisation of Irish Steel was initiated in 1993 by the Fianna Fáil/Labour Government which considered how the plant could be modernised. Consultants were appointed and the Minister of the day expended much time and effort on that mission, as indeed we all did at various consultative meetings on the workings of the Department.

The consultants recommended sweeping changes in work practices, a cut in the size of the workforce and the establishment of a strategic partnership between Irish Steel and another steel/finance company. I am referring to the Vincent Xavier report. The rationalisation programme was successful. To its credit the workforce has been robust and indomitable throughout this saga and despite the presence of some horrendous items on its agenda over the years, it swallowed hard and got on with it. The workforce accepted major changes and Irish Steel managed to move from a loss of £20.7 million in 1993-94 to a loss of £5.8 million in 1994-95. I am informed by the chairman, Mr. Dineen, that the company is on track to make a small profit of £1 million in this financial year. This led me to ask whether it is the right time to do what we are doing but I will address that later.

I commend the chairman of the board, the board members and the workers for whom that period was difficult. I am broadly supportive of what is happening now but those two years were difficult. I remember stark meetings, as will the Minister for Finance, when things seemed bleak in the Department of Enterprise and Employment. We wondered where the company was going but the chairman and the workers buckled down to the task. It is to their credit that we have arrived at this position. It struck me that considering the company made a small profit of £1 million in this financial year because of that dogged determination, perhaps it was time to let the matter go ahead. That is just a side issue now. Somewhere in that rationalisation the seeds of the current sale were sown and it is on this that I would like more information. Will the Minister answer some specific questions about the sale and about his actions? The reason I seek the information is that I have concerns about the terms which have been agreed. If the Minister can give satisfactory responses he can allay all concerns about the sale.

My concern relates to the safeguards which the Minister in his speech says have been built into the deal to protect the workers and the Exchequer. Workers form a key part. They were instrumental in turning Irish Steel around and preparing it for the sale. Sadly, over 230 jobs were shed. Major work practice changes were accepted; that was very difficult.

While ISPAT International guarantees to maintain the employment numbers for five years, what will happen if there is a bad downturn in the world steel industry between now and the end of the decade? Will there be layoffs or redundancies? If so, could the State be liable?

I ask the Minister to comment on an article in the Sunday Independent of 10 September, 1995, in relation to the Irish Steel deal, to which he referred in his speech. According to the article, ISPAT has promised to pay the penalty of £10,000 for every Irish Steel worker made redundant in the next five years and all such payments will go to the Irish Government. Is this accurate? If it is, what does it mean for the Exchequer? Does it mean that the State will have to pay out further redundancy money in the event of ISPAT International letting people go? Are the Irish Steel unions aware of this arrangement and have they accepted it?

I ask the Minister to explain why the Government decided to sell all of the company. With privatisations, there are often opportunities for the Government to hold a share so that it can have some influence over the future of the company. Was this considered on the agenda for Irish Steel? Given the commitment in the Government's programme to maintain assets in State ownership and to manage change in the interest of the workforce, how does this Irish Steel sale fit into this scenario? If the workforce's interests are supposed to be to the fore, how come they do not have a shareholding? In the case of Aer Lingus, the staff received shares for accepting major changes. Why is that not the case here?

I am keen to hear the Minister explain how the deal will be monitored. Will there be an early warning system? Must ISPAT International consult with the Government and/or the workforce before making major changes?

There is also an onus on the Minister to explain — and, as I was not present during the Minister's speech, I have been trying to check this — why ISPAT International was selected and what other offers were received. I think I received phone calls from interested parties saying that they had submitted proposals for Irish Steel but that these had not been taken up. Will the Minister explain in his reply why the ISPAT International offer represents the best deal for the State and Irish Steel workers?

He must also explain why the Government has gone the route of complete sale rather than taking ISPAT International as a strategic partner, as was laid out by Simpson Xavier report of 1994. Why has there been a change of tack?

I noticed when the Minister made the announcement that he hoped Irish Steel would increase in value after the State sold it. I thought it was a daft statement to make. One would wish them well but if the Minister expected Irish Steel to increase in value, why should the State not benefit? This goes back to the tentative doubts which I expressed that we are selling it in a period when it has made a profit, albeit a modest one. It has recorded a profit due to stringent management and a generous workforce.

Did the Minister's Department and the Government consider a strategic alliance with ISPAT International? Various Governments have invested £185 million in Irish Steel over the last 25 years. The Government has now agreed to write off £17 million of that loan and invest £10.4 million. The Minister rather blithely said in his speech, "Furthermore, the deal provides undertakings from ISPAT to take over all loans, debts and liabilities of Irish Steel with the exception of an old Government loan of £17 million made in the mid-1980s." That was the Government loan made by the then Minister for Industry and Commerce, the present Taoiseach, Deputy John Bruton. That is lovely as a throwaway sentence. Why this loan? I understand it was supposed to be repaid.

Everyone knew this would not be repaid. It is a rather cavalier paragraph. It refers to the exception, which is an old Government loan of £17 million made in the mid-1980s. One would think from the tone that this was only 17 pence. The loan is to be extinguished by the Government. I cannot remember from my time in Cabinet whether such a loan carries on, exists as a debit or a credit, or where it stands in Government expenditure. A sum of £17 million would pay for much worthwhile work in Departments or help people waiting to enter VTOS and Youthreach programmes. If one could blithely extinguish all one's debts in this fashion, the Minister for Finance and his successors would have an easy time. The Minister does neither himself, his portfolio, or his Government justice by inserting this paragraph and I want a better explanation of it. It appears the legislative proposals will have to be introduced by the Minister to give them effect. This does not indicate what proposals are planned and when they will be introduced. I would be glad of answers to those queries.

It is easy for the Minister to say this is a troublesome child and it is useful for the State to be rid of it through this deal but I do not take such a debonair view. When we needed steel, we set up this company. Many people spent their lives there, working long hours in dirty, undistinguished circumstances to provide steel when we needed it for building during a good stage in our development. In the 1970s it got into great financial difficulties. From time to time industries become obsolete and must change tack. I accept that but I have legitimate questions and a right to have them answered.

I am glad the Whips were able to arrange this debate and I thank the Minister for giving the details. Nonetheless I ask him to answer my questions. I wish Irish Steel, its workers and management many fruitful years ahead. I thank them and their predecessors for their work in Irish Steel, which in its day was a major State company giving a fine product to this country.

Miss Harney

I am delighted Irish Steel has been saved and privatised. I am pleased for the 331 workers and their families and those involved in ancillary industries in Cork harbour. Having said that, the Irish State's involvement in steel making has been unhappy. Whatever about the justification for getting involved in steel in 1947 in the European post-war economic boom when steel became a readily available commodity on the open market, there was no justification for continued State involvement and the rationale for it soon disappeared.

It is a pity Irish Steel was not privatised earlier. Who knows how it might have fared? There may have been job losses but the management, free from political direction, would have been able to make the changes which would have allowed the company to cope with international competition. However, that did not happen.

The decision to privatise Irish Steel is an important ideological departure for this Government, especially for Labour. I remember the Tánaiste saying that if privatisation was countenanced, his party would withdraw from Government. I welcome the conversion of Labour and hope we can all learn lessons from the State's involvement in this company. As expensive as our experience in Irish Steel may have been, if we learn a lesson which can be applied in other State companies it may have been worth it.

There has been an ill-fated attempt especially since 1981, to prop up Irish Steel. At 1995 prices, £200 million has been spent. That is £600,000 for every job now maintained at Irish Steel, enough to allow all the employees set up their own business. We should not forget the expensive cost of maintaining those 331 jobs. It is interesting to note — and I have seen comments, particularly from local constituency TDs — that this is a strategic industry. I do not believe we have maintained a stategic industry. There are fewer people working in Irish Steel now than there are in the McDonald's hamburger chain of restaurants. If that is strategic, I do not know what strategy is.

Members of this Government seem to take the view that bureaucrats can pour money into industries and in that way create jobs. I want to refer in particular to an unusual but blistering attack made by the Minister for Agriculture, Food and Forestry on the IDA. The IDA reports to both the Minister for Enterprise and Employment and the Minister for Agriculture, Food and Forestry. I do not know if the Minister's comments were a condemnation of his own efforts or the efforts of his colleagues but it was a very unusual statement. If any Minister says that because there are three Ministers in his constituency the IDA should get its finger out what does that say to the 28 constituencies that do not have a Cabinet Minister? Does it say that there is to be a two tier approach by the Government whereby public money is sent in the direction of those constituencies represented by Cabinet Ministers while ignoring constituencies unfortunate enough not to be so represented? The Minister should come into this House and withdraw the comments he made. They were unfortunate and particularly regrettable from a Minister who has responsibility for the IDA and to whom the IDA has occasion to report. They also underline an attitude that exists in certain Government and other circles that if money is thrown at constituencies or industries, that is the only way to create jobs. Bureaucrats, the IDA or any body of that kind will not generate employment. In this and other countries employment is generated by opportunity. Investors invest where there is an opportunity for them to make a profit and job creation and employment flow from that. If we really want to encourage investment in Wexford or any other area we must change, in particular, our anti-work taxation system. That is the single greatest vehicle available to the Government to generate employment.

I said earlier that I welcomed the privatisation of Irish Steel. Unlike Deputy O'Rourke, I do not think it would have been either desirable or feasible for the Government to have maintained an interest in this company. The Government is right to get out of Irish Steel and I regret that previous Governments, including one in which my party was involved, did not avail of the opportunity to exit from this company a long time ago. Privatisation improves competition, increases efficiency and reduces costs for domestic and industrial consumers of the products of the particular companies. It saves the taxpayer from having to invest in capital expenditure — in the case of Irish Steel it would have saved £200 million — and it boosts public finances because money is paid to the Exchequer. However, this is an unusual privatisation because instead of being paid money for what would normally be regarded as an asset, we are forced to pay almost £10.5 million to the investor. We are boosting the pension plan and writing off the £17 million debts of Irish Steel. In all, this privatisation is costing the taxpayer £28 million.

Mrs. O'Rourke

The Deputy cannot have it both ways.

Miss Harney

Privatisation normally involves privatising an asset. The point I am making is that this is not an asset and has not been for some considerable time. If it were an asset, we would not be paying money to somebody to take it; we would simply write a nominal cheque for £1. I would like the Minister to explain what other interested parties were approached. I presume the Government took the best investor both from the point of view of jobs and the future of the company.

If the Government can justify the privatisation of Irish Steel, how can it justify the continued participation in the Great Southern Hotels, the National Petroleum Corporation, NET, and other State companies? We should learn some lessons from what is currently taking place in Hungary, a former Communist state. The Hungarian privatisation authority is currently privatising its entire electricity generation and distribution system.

A London merchant bank is handling it and is seeking interested bidders. The company is being broken up into 13 subsidiaries. If the former Communist blocs can make such sound commercial decisions then we should not be running away from making the obvious commercial decisions in Ireland. We have to be pragmatic when it comes to these matters. The question of privatisation is not an ideological issue, it is a pragmatic one. I should say at the outset, because it is often misunderstood, I do not favour the privatisation of State companies. I do not favour private monopolies taking over from State monopolies: that is even more sinister and more damaging. The consumers and the taxpayers will benefit only if there is competition and only in that way is there efficiency.

Will the Minister explain if his Department has plans in relation to any other companies under the auspices of the Department of Enterprise and Employment? Has the Government appointed consultants to companies other than Telecom? What is the Government's attitude to privatisation? Are we likely to see a change? Are we likely to see a pragmatic approach being adopted at a time when the State has enormous debts? I am pleased to see the Minister for Finance in the House. It is not satisfactory that a country that owes £28 billion, has such high levels of tax on work and such a small productive base can maintain an interest in companies that are in no sense strategic to the development of this economy.

I welcome and support what the Government is doing and I hope we all learn lessons. I hope the management of State companies generally will benefit from the experience of Irish Steel. I wish Irish Steel and its workers well with the new company ISPAT International. I hope it thrives and succeeds and, freed from political involvement and political direction, that the best commercial decisions can be made. At the end of the day that is the only way to maintain real jobs that can benefit the economy nationally and the regional economy in Cork harbour and the east Cork area generally.

Minister for Finance (Mr. Quinn)

On behalf of the Labour Party, as Minister for Finance and as a former Minister for Enterprise and Employment I am pleased to be in a position this afternoon to address the House on what is a very positive outcome. Efforts to secure a future for the Irish Steel company as an economic entity and, in particular, to secure the jobs of those employed at the plant have absorbed much of my time and political energy over the last two years — a matter referred to by Deputy O'Rourke. I am delighted that this effort, together with that of many others, has now borne fruit. I pay tribute to my colleague, the Minister for Enterprise and Employment, Deputy Richard Bruton, for the successful conclusion of that difficult task.

Those involved in mapping out a new future for Irish Steel have travelled a long road and have had to overcome many obstacles, both those of an impersonal, economic nature and those of a very personal, human kind. At times these obstacles appeared well nigh insurmountable and the successful conclusion now in prospect is a tribute to the tenacity and hard work of all those who refused to give up.

Deputies may recall that in late 1993, in my capacity as Minister for Enterprise and Employment, I commissioned a consultancy report on the future viability of the company. I was convinced at that time of the need for a fundamental reappraisal of the company's strengths, weaknesses and prospects. The results of this exercise made it quite clear that, without a radical reorganisation of work practices and a lowering of the cost base, the company had no economic future. Even with those measures in place, the preferable course was to find a strategic partner who could provide both capital and expertise in the years ahead. Acceptance of these findings led to a recovery plan spearheaded by Mr. Pat Dineen whom I appointed as executive chairman in April 1994.

It is now a matter of history that initially agreement proved virtually impossible. The measures proposed were too unpalatable and there was no general agreement that they were necessary. However, believing that recovery depended on their successful implementation, I gave the management of the company my unequivocal and total support. In that respect I wish to respond to a matter alluded to by Deputy Harney. State companies have managed to be immensely successful in a variety of different countries where they were not subject to unwarranted and, in particular, non-commercial political influence. Nobody would say Renault is an unsuccessful company in commercial terms — and it is state owned. There are many successful state banks in Japan and Germany and it was the private ownership of the British car industry, particularly British Leyland that brought that company to the point where it had to be rescued by the state. As Deputy Harney said, this is more a question of pragmatism rather than ideology. There is a lesson for all of us and this is not to interfere politically in the commercial running of any company, be it publicly or privately owned.

It was a very difficult job and it was essential to identify the long-term interest and not be deterred by short-term difficulties. I pay tribute to the work of two bodies which were crucial to the successful outcome of the negotiations and to the agreement of the workforce to the very difficult package arrived at in August of last year — the Labour Relations Commission, led by Mr. Kieran Mulvey and the Irish Congress of Trade Unions and in particular Mr. Kevin Duffy. Both paid a key role in securing agreement from the workforce. I pay tribute also to my colleague, Deputy John Mulvihill for his tenacity and behind-the-scenes work and for his constant intervention on behalf of the workforce.

Despite further difficulties the agreements eventually arrived at enabled me to secure the support of the Government to approach the EU for approval to invest up to £50 million, if necessary, in Irish Steel and I was able to authorise a new search for a strategic partner for the company. Not only would such a partner help to win the unanimous agreement necessary from our EU partners for new investment but it would place the company in a much better position to develop its business in a broader economic context.

The recent agreement reached with ISPAT is the outcome of this later stage of the recovery plan. It is quite clear that without the successful changes painfully implemented at the company from late 1994 onwards, it would not have been possible to find a partner. Furthermore, it would have proved extremely difficult to win approval for investment by the State in the company on a "go-it-alone" basis. That ISPAT wished to negotiate for a 100 per cent shareholding is indicative of its faith in its capacity to develop the company successfully as part of a wider group.

The agreement reached with ISPAT is a very good one from the perspective of the company and its employees, of the wider community in Cobh and of the taxpayer. It is fully in accord with the principles set out in the programme a Government of Renewal negotiated by the three parties in Government. It achieves the objectives set out.

My colleague the Minister for Enterprise and Employment, Deputy Richard Bruton, will address the question of 100 per cent ownership. I can speak only for the Labour Party which with the other parties in Government signed up for the programme a Government of Renewal and we are quite satisfied as indeed are the Irish Congress of Trade Unions that this is in accord with the policy principle set in the Programme a Government of Renewal.

I compliment the management of the company, in particular Mr. Pat Dineen, executive chairman and Mr. Leslie Buckley, acting chief executive who without faltering together steered through the recovery plan in circumstances where others may have thrown in the towel. We owe them a substantial vote of thanks. I pay tribute also, to the effort of the many officials in the Departments of Finance and Enterprise and Employment especially two people without whose tenacity and dedication this deal would not have gone through, that is the Assistant Secretary in the Department of Enterprise and Employment, Mr. Ronald Long, and a senior official in my Department, Mr. Michael Cunniffe. I commend the workforce in Irish Steel for their perseverance and commitment during the past 18 months and for their bravery in facing up to the challenges necessary to ensure a viable future for the Cobh plant. Together they have helped to put in place a deal which augers well for the future.

I hope this company is successful. I wish it well. I hope it becomes a very profitable entity and that we get a flow of tax income that will enable us to do other things. There are lessons for everyone from the experience of Irish Steel and they have to be applied to every other enterprise irrespective of the nature of its ownership.

Mr. M. Ahern

I welcome the opportunity to contribute to this debate on what hopefully will be the last saga for Irish Steel. Since I became a Member of the House in 1982 there have been many crises in this company which has absorbed £185 million of taxpayers' money. However, it should also be said that Irish Steel has given gainful employment to many people over the years — the workforce of 1,000 when the company was set up 20 years ago was first reduced to 561 and then to 331 — and provided a living for associated businesses and suppliers in the area.

As time went on it was correctly decided that it was unsustainable to maintain a company with such losses and the then Minister for Industry and Commerce, Deputy Albert Reynolds, tried very hard to get someone to invest in Irish Steel. However, there was a change in Government and, contrary to what Deputy Harney said, the new Minister, Deputy O'Malley, decided not to sell the company. I am not sure what he wants because he spends all his time talking about privatisation but when he had an opportunity to privatise a company he shut the gate on this idea. Since then the leadership of the Progressive Democrats seems to have had a different view from what we heard this afternoon.

Irish Steel continued to go down the tubes and when it finally came to the wall last year the Minister for Enterprise and Employment set up an investigating body. Even though its recommendations were tough they were the only viable ones if the company was to survive. The workforce knuckled down and there was a change in practices; it was accepted that in order for the company to survive there had to be change. If those changes had not occurred it would not have been possible to sell the company.

I hope the European Commission will allow the Government to proceed with the project, without which Irish Steel will not be able to survive. Regardless of what Deputy Harney said, it is vitally important that the jobs in this company and related companies are maintained in the Cobh and Cork Harbour areas.

Deputy O'Rourke referred to the fears expressed by some people about, for example, the safeguards built into the deal to protect Irish Steel workers and the Exchequer. While ISPAT has guaranteed to maintain the employment numbers in Irish Steel for five years what will happen if there is a severe downturn in the world's steel industry between now and the end of the decade? If there are lay offs will the redundancy sums paid to the workers be calculated from the date they were first employed by Irish Steel or will the State have to pick up the tab? It has been reported in the newspapers that £10,000 will be paid to all Irish Steel workers made redundant during the next five years. Will the Minister expand on that point? Does the State have to pay the redundancy if these people are laid off?

The decision to sell Irish Steel is a very important one for employment in the Cobh area, and it must have been a difficult one for the Labour Party whose philosophy is not to sell any State industries. I compliment the Minister for Finance who, when he was Minister for Industry and Commerce, looked at this problem in a practical way and gave the type of support necessary to the management, the chairman and the acting chief executive to carry out the necessary works to make the company acceptable to a purchaser. I hope it will be successful and that, in the years to come, we will not have to come here to make a case for the granting of aid to keep that industry going.

Minister for Enterprise and Employment (Mr. R. Bruton)

I want to put on record my acknowledgement of the role played by the former Minister for Enterprise and Employment, Deputy Quinn. I was pleased to pick up the baton for much of the work he put in. I would also like to associate myself with the unusual acknowledgement of the service of particular public servants, most notably, Ronald Long, and the many people, including Pat Dineen and Leslie Buckley on the board and the workers in Irish Steel, who put in a huge amount of work to get us where we are today. However, I would like to devote most of my attention to the issues raised by various Deputies.

As to whether this is timely, the last 12 months or so have been a period of high steel prices. Breaking even this year is a feature of a particularly good period in the cycle. Unfortunately, the track record of Irish Steel over earlier years was far from successful during the troughs, and the viability plan, which would not have involved the sale, would have run into severe difficulties.

Deputies need not worry that we are missing out on the opportunity of retaining an interest in Irish Steel. They wanted to know if we could not have kept some shareholding, either a strategic partner or worker sharing. The companies who made a bid all did so on the basis of a 100 per cent shareholding — they were not interested in a minority shareholding. All but one did not measure up on many other more important criteria relating to employment and capital investment. The quality proposals were for a 100 per cent shareholding. Let it be said also that the biggest fear the EU would have in examining a package such as this would be that there would be an opportunity for continuing State aid. The 100 per cent sale puts us in a much stronger position to deal with the EU in the context of approval of this deal.

The issue of what would happen in the event of a downturn was also raised. We have enforceable contractual commitments with ISPAT within this deal so that in the event of a downturn and their being unable to meet their employment commitments they would be bound by the contractual terms. The State would not be liable for redundancy payments but would realise liquidated damages if they failed to maintain employment. The Government would address the needs of workers in such a context where it received such damages.

The monitoring of the deal was also raised. We have detailed monitoring arrangements worked out whereby the company will provide us with all information we require relating to employment, maintenance of the business, capital expenditure, profit and loss, balance sheet, financial ratios, etc. We will monitor any major change in the business.

This path was selected against the background of a number of criteria, most important of which were security of employment, quality of investment being made for the future and the strength of the company coming forward. Across a range of carefully appraised measures it was clear that this path scored highest. It gave a firm commitment to employment levels and to a £30 million investment made up of £5 million working capital and £25 million capital investment over five years. This company has a broad range of experience in the business and a track record of turning around companies it has acquired, many of them from State ownership. It has a deep resource in terms of its net value and turnover. It is an outstanding company with the capacity to bring many strengths to Irish Steel to restructure its product mix and add value to its product base. That will greatly strengthen the company.

Regarding why £17 million was written off, the Deputy will have to study the company's background. It had sustained losses of £145 million and we faced a closure cost of £40 million if we decided to close it. If we proceeded with the restructuring plan proposed by Irish Steel, it would have cost £50 million in terms of investment and we would have run a serious risk that such a plan would not meet with EU approval. We had received indications that it would run into severe difficulties. It is costing us money to put in place a long term viable package for Irish Steel, but the package offers the very best chance of success and minimises the exposure to the taxpayer compared to either of the other options. Against that background it is a good deal. I understand legislation will be introduced when EU approval is secured.

I assure Deputy Ahern that redundancy sums will be calculated on the basis of full service. ISPAT has undertaken full labour contracts.

Deputy Harney raised an extraneous question concerning comments made by my ministerial colleague, Deputy Yates, about the IDA's performance in Wexford. While no doubt he can speak for himself, he was playing for the local team in his constituency when he made those comments.

Mrs. O'Rourke

On national television.

Mr. R. Bruton

The IDA has an independent statutory remit. It is not prone to Government influence and I am steadfast in my belief that it must pursue its independent remit. It has an independent board which jealously protects that independence. I am impressed with its recent performance. Its quality performance deserves credit.

I am pleased we have had an opportunity to have this debate. The Opposition has a right and a duty to raise questions about proposals such as this. I hope I have dealt with the questions asked and I ask for the support of all Members of the House — and I am sure I have it — in our endeavours to secure EU approval for this deal. It is a good way forward for Irish Steel. It meets the EU requirements and is a credit to many present today who contributed a good deal and to the workers who made so many sacrifices over a long period.