I move: "That the Bill be now read a Second Time."
Last week the Seanad passed the Irish Steel Limited Bill, 1996. I now look forward to its smooth passage in the Dáil and I am grateful to the House for agreeing to take the Second Stage of the Bill today. The passage of the Irish Steel legislation is a precondition to the finalisation of the agreement for the sale of the shares of Irish Steel Limited to ISPAT International and the deadline for completion of all the preconditions, including the legislation, is now 30 April. There are still a number of matters to be finalised by the State negotiators and by representatives of ISPAT International before the sale of the Irish Steel shares to ISPAT can be concluded. On completion of these matters, a momentous milestone in the history of Irish Steel Limited will have been reached and we will see ownership of the company pass from State ownership to private ownership.
I would now like to recall some of the recent history of Irish Steel Limited. As the House will be well aware, Irish Steel's troubles have been going on for decades. Successive Governments have invested substantial amounts of taxpayers' money in the company with no return on the taxpayers' funding. Irish Steel has made profits in only three years out of the past 20 and these profits were never of a 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 of Irish Steel.
We have seen employment levels in Irish Steel drop from over 1,000 two decades ago to 561 in recent years and to a current level of approximately 400. In the trading year 1993-94, Irish Steel was losing well over £1 million a month and total losses for the year amounted to more than £20 million. Figures for the years 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 pressure 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 by Irish Steel — £13 million on a turnover of £58 million in the year ended June 1993 — it was imperative for Irish Steel to implement cost reductions 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 once again the tremendous sacrifices and efforts made by the workers of Irish Steel in the implementation of the viability plan.
This viability 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, and 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 the steel markets.
Faced with the high losses that had occurred in 1993-94 and notwithstanding the implementation of the viability plan, 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 more than £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 the £50 million envisaged in the viability plan and that at the same time negotiations could be opened for the possible sale of shares in, and control of, the company.
Following the Government decision, an application for State aid approval was lodged with the European Commission and at the same time I appointed Investment Bank of Ireland Corporate Finance Limited to act as advisers to the State 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, Max-Aicher, Nippon Denro and Nucor-Yamato. Each of the 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 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 State advisers, as the company which should be granted exclusivity of negotiations 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 bidders involved.
During the summer of 1995 ISPAT concluded detailed due diligence with their own professional team, in co-operation with IBI Corporate Finance Limited, Irish Steel Limited, my Department and the Department of Finance. 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 a sale and purchase agreement with ISPAT International on 6 September, 1995 which was signed by me and the Minister for Finance for the sale of all of the shares of Irish Steel Limited to ISPAT International.
As the agreement with ISPAT International involved State aid from the Irish Government amounting to approximately £27.5 million which included the writing off of an old Government loan to Irish Steel of £17 million an application was submitted to the EU Commission for approval of the State aid involved under Article 95 of the European Coal and Steel Community (ECSC) Treaty. The EU Commission accepted the case made by the Irish Government on behalf of Irish Steel and recommended to the EU Council that the State aid for Irish Steel Limited should be authorised exceptionally under Article 95 of the ECSC Treaty, subject to certain conditions. The Commission's recommendations was considered at the EU Industry Council on 6 and 7 November 1995 and while 14 of the 15 member states were in general prepared to approve the State aid involved, the UK refused to give its support. Unanimity among all member states of the EU was essential for approval of the State aid for Irish Steel under Article 95 of the ECSC Treaty. In view of the UK opposition the Council of Ministers agreed on 6-7 November 1995, at the suggestion of the Spanish Presidency and the EU Commission, that the Irish and UK delegations should continue to search for an agreement on the matter which could be approved at a later Council meeting.
Following the intensive negotiations I had with the UK Minister for Industry and Energy, Timothy Eggar, and with the President of the UK Board of Trade, Ian Lang, during the months of November and December 1995, the UK Government withdrew its reservations to the State aid involved in the Irish Steel restructuring plan. This enabled the EU Council of Industry Ministers unanimously to approve the State aid package on 20 December 1995 under Article 95 of the ECSC Treaty. To overcome the UK objections, production caps on finished steel and billets together with limits on the sale of finished steel products in the EU market — including Norway and Switzerland — had to be agreed by me in consultation with Irish Steel — ISPAT to secure the unanimous approval of all the EU member states and, in particular, the United Kingdom.
I pay tribute to the owners of ISPAT, to the management of Irish Steel and ISPAT and to the workers of Irish Steel for being so patient and supportive during the Irish Government's difficult and intensive negotiations, especially with the UK Government, to secure Article 95 approval.
I would like to give again to the Dáil details of the deal which was agreed with ISPAT International on 6 September 1995 and the changes that have been agreed with ISPAT International following the EU approval secured on 20 December 1995. ISPAT International is to buy Irish Steel for a nominal sum of £1. The sale should be finalised within the next few weeks. The agreement will involve a certain level of expenditure by the State and by ISPAT International.
In addition to writing off an old Government loan to Irish Steel Limited of £17 million, the State has agreed to pay £20,273,500 to Irish Steel Ltd/ISPAT International. The State's contribution of over £20 million includes: provisions for charges and expenses identified by ISPAT in the due diligence process which should have been in the balance sheet of Irish Steel Limited for the 12 month period ended 30 June 1995 — the amount of the Exchequer's contribution here is £2.831 million; to fund necessary environmental and other remedial works — the amount of the Exchequer's contribution here is £2.360 million; to provide a matching contribution towards an ECSC staff training grant — the State's contribution here is £192.500; to compensate the company for the restrictions on production and sales imposed on the Irish Steel/ISPAT project to overcome UK objections at European level — the amount of the Exchequer's contribution here is £7.2 million; to provide an up-front cash payment in lieu of indemnities in respect to possible residual taxation and other costs and financial claims arising from the past — the State's contribution here is £2.445 million; to compensate the company for interest charges on existing debts — the Exchequer's contribution here is £4.617 million and to fund a deficit in the staff pension fund — the State's contribution here is £628,000.
ISPAT International will invest £5 million of working capital in Irish Steel immediately on completion of the deal. ISPAT is also committed to a significant level of capital expenditure. This will see investment of £20 million over the next six 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. It is planned that approximately half of the capital spend will 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 it 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 which 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 operation. Under the deal, ISPAT International has entered a contractual commitment to employ a minimum of 300 full-time workers in Irish Steel for the first five years of its ownership of the company. It has also agreed to honour in full all commitments of Irish Steel with regard to labour contracts and pension plans.
I am confident Members will agree that this situation contrasts very favourably with the situation 18 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 of the number of full-time workers falling below 300. There was understandable concern among the workforce of Irish Steel and its trade unions that the sale of the company could 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. I am satisfied that the trade unions are now fully committed to a new Irish Steel in the full ownership of ISPAT International. I have been impressed with the management style of the new owners since their involvement in Irish Steel Limited last September and am confident that this augurs well for good, professional relations between the new management, the employees and the trade unions.
I would like to take this opportunity to give a brief pen picture of ISPAT International. This multinational corporation which was founded in India has manufacturing facilities in Mexico, Canada, Trinidad and Tobago, Germany, the USA, the UK, Indonesia and Kazakstan for the production of steel and related items. The group is the world's largest producer and consumer of direct reduced iron, that is iron produced from iron ore. It is also one of the world's largest producers of liquid steel. Prior to its very large acquisition in Kazakstan the group had a total workforce of 6,500 and produced 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. The Kazakstan acquisition by ISPAT International from State ownership is enormous and involves some 30,000 employees.
The Government is satisfied that with the sale of Irish Steel to ISPAT International it has achieved the best possible deal for the State, the company and the workers of Irish Steel. The finalisation of the agreement for the sale of the Irish Steel shares to ISPAT offers a wonderful opportunity for the development of Irish Steel into the next century under private ownership. The Government's investment is considerable but this investment has been readily agreed because of the Government's confidence that ISPAT is an excellent strategic company to take over Irish Steel and because of the Government's confidence in the Irish Steel workforce. Selling the shares of Irish Steel to a company of the calibre of ISPAT is a great achievement and is just recompense for the Irish Steel workers who have made sacrifices in recent years.
The major investments being undertaken by ISPAT shows the commitment which ISPAT is prepared to make to ensure the success of Irish Steel and displays ISPAT's confidence that with the continued assistance of the Irish Steel workforce the project can be profitable and successful. Under the leadership of a major international steel company, with the managerial expertise of ISPAT, in partnership with the Irish Steel workers and their unions, the future for the Irish Steel/ISPAT project should be bright. However, future success cannot be taken for granted and it will have to be worked for. The international steel industry is extremely competitive and the Irish Steel/ISPAT project will have to compete vigorously in that environment. A solid base is now being established to enable the new company to take on all competitors.
ISPAT has the necessary expertise and commercial contacts to ensure the success of the project. Irish Steel will benefit from the experience the new owners will bring to bear and the economies of scale that also derive from a group of the size of ISPAT. Based on my contacts to date with the owners of ISPAT, the new management of Irish Steel, the workers in the company and their trade union representatives, all involved understand the importance of good industrial relations for the success of the project. There will be difficult years ahead mainly because of the cyclical nature of the steel industry but, if all elements of Irish Steel pull together towards established objectives, the probability of success will be increased.
Irish Steel has always been important for the workforce and their families and to the local economy. The restructured Irish Steel will be equally important and its contribution to all concerned has been guaranteed for the foreseeable future. It is now up to the ISPAT organisation, the new management of Irish Steel, the workforce and their unions to ensure that Irish Steel continues to play an important part in the economy of the local area. From now on Irish Steel will have to survive by itself and develop outside the State sector.
This legislation is necessary to enable the sale of the shares of Irish Steel Limited to ISPAT to be finalised. This is a short Bill with only 10 sections and its main purpose is to repeal the legislation on Irish Steel passed by the Oireachtas during the period 1960-85 when the company was in the ownership of the State and when it required Exchequer funding to survive. That legislation will no longer be necessary when the shares of Irish Steel Limited are sold to ISPAT. This Bill also contains provision to enable me, as Minister for Enterprise and Employment to fulfil the financial commitments agreed with Irish Steel/ISPAT under the agreement for the sale of the shares of Irish Steel Limited. I look forward to discussing the individual sections of the Bill on Committee Stage. I commend the Bill to the House.
I pay tribute to the workers in the company, ISPAT, those who assisted in the deal and, in particular, Pat Dineen and the former members of the board, who steered Irish Steel through a difficult period. There has been great cooperation and understanding among the unions, workers and management and in this House where there has been an all-party constructive approach to try to achieve the best for Irish Steel.
I thank the Opposition Deputies as well as my colleagues in Government for the very constructive way in which this has been handled throughout what has been a very difficult number of months.
