I am sure the Deputies do. I thank Deputy Higgins.
In response, an arrangement known as the mandatory regime, or MR, was introduced, which compelled those companies to source a fixed proportion, originally set at 35%, of their overall requirements from Whitegate at a premium price which was passed on to the consumer as a levy at the pumps. The price support system was necessary to enable the refinery to stay in business notwithstanding its technical limitations and the other factors which militated against it operating on a fully commercial basis.
While the capabilities of the refinery have been improved in the interim, its basic drawbacks have remained and have been a continued source of uncertainty over the years. Whitegate, for example, lacks scale, technical sophistication and the benefits of integration with the more profitable sectors of the oil business. It operates in a market which is dominated by the local affiliates of the multinational oil companies and is entirely dependent in commercial terms on international refining margins, which are completely outside its control and which are more often negative than positive. Not surprisingly, and despite dedicated and highly professional service from INPC's management and staff over two decades, the threat of closure has never been far away.
In these circumstances, State ownership and in particular the availability of financial support under the mandatory regime has provided a lifeline for the INPC and has ensured that Ireland has been able to retain the benefit of the strategically significant facilities operated by the company. At the same time, it has been a poor substitute for a proper commercial environment for the company within the mainstream oil industry. Successive Governments have been concerned about the potential threat to competitiveness posed by the MR and as the arrangement is subject to annual review, Ministers in charge of the energy portfolio and the INPC itself have always had to live with the prospect that MR support and, consequently, the refinery might not survive from one year to the next.
As I have said often and not with any tone of censure, the previous Government took a Cabinet decision to abolish the mandatory regime levy but within three or four months rescinded that decision. Dependence on the MR has tended to become especially worrying whenever the necessity for investment at the refinery has arisen. This occurred most recently in the context of the need to adapt the refinery to ensure that its products would be able to meet new emission standards for motor fuels under the EU auto oil 1 programme, which were to be effective from the year 2000.
The proposal that went to Government at that time seeking approval for the auto oil investment, the cost of which was then estimated at US$100 million, made it abundantly clear that there was no prospect of the INPC raising the necessary finance without the assurance of MR support at a level commensurate with the need to make loan repayments in addition to compensating for ongoing operational losses. I am glad the Government was prepared to accept my recommendations and allow the INPC to proceed with its proposed upgrading project, which eventually entailed expenditure of US$75 million. Otherwise, there was no doubt but that the refinery would have had to close once the new environmental standards came into force and that Ireland would have lost an important contributor to security and diversity of oil supply.
The assessment of the auto oil project had the effect of highlighting the certainty that Whitegate could not maintain operations and service its debts on the basis of income from refining alone and, consequently, would continue to require MR support for the foreseeable future. Concerned at this prospect, the Government therefore requested the INPC to seek out possibilities for additional commercial activities to underpin the core refining business. Nothing was prescribed and nothing was ruled out. It was a question of INPC using its best efforts to come up with options that could be identified and developed into workable proposals.
The INPC responded to that challenge with exemplary enthusiasm and energy and after an extensive and professionally-conducted search process, the INPC board recommended to me a proposal submitted by the US-based Tosco Corporation as representing by far the best and most forward-looking prospect for the INPC and the State. This assessment was confirmed by my expert advisers and last July the Government was therefore prepared to permit the INPC to confer preferred bidder status on that company.
There followed almost a year of very intensive activity as the proposal was refined and developed. This phase included a direct role for my officials and those of the Minister for Finance who, with the help of independent financial and legal experts, have worked to ensure that share holder interests were fully addressed at all stages of the process.
I am aware there was impatience at times because of the amount of attention given on the shareholder's side of the table to the small print of the proposed sale and purchase agreement. While I can understand the frustrations in some quarters, I make no apologies for the diligence of the officials and advisers concerned – it is no more than we have a right to expect when the disposal of State assets is in question and it makes for a more stable settlement in the long run.
The outcome of the process is a proposal which I have been prepared to recommend to my Cabinet colleagues because I consider it to be in the best interests of the INPC and its workforce, the State and the economy generally. Under the terms of the proposed transaction, the INPC will receive US$100 million from Tosco and will retain the proceeds from existing debtors. The INPC will be paid for its trading stocks at market prices on completion of the sale and will retain certain stocks originally acquired, at the direction of the Government, in 1990 for strategic rather than trading purposes.
At the end of the day, however – I must be clear about this – the net proceeds to the Exchequer will be considerably less than the headline figure of US$100 million I have mentioned. This is chiefly because the INPC will continue to be liable for the existing debt of about £70 million, most of it due to the auto oil 1 loan, and for existing liabilities to trade creditors. An ESOP for INPC employees will also have to be funded out of the sale proceeds. Nonetheless, while the final arithmetic at the time of completion will be influenced by, inter alia, oil price and currency fluctuations in the interim, the overall result will be a positive transfer to the State and this is considered to be a very satisfactory outcome.
However, the principal benefit of the transaction from the State's perspective is the fact that for the first time in almost 27 years, there can be a solid basis for the future of both the refinery and the terminal, and for the strategic contribution they make to our economy. A central plank in the Tosco proposal is a written undertaking to operate and invest in the facilities on a fully commercial basis for at least 15 years while maintaining existing jobs and conditions of employment. I have been given to understand by Tosco's chief executive officer that in the corporation's plans for the Irish acquisitions, 15 years is only the beginning.
We should not underestimate the national significance of this aspect of the proposal. Since 1982, the State has been prepared to support INPC through the operation of the mandatory regime because of the strategic significance of having refining capacity on the island but, as we have seen, that stewardship was a poor substitute for a proper commercial environment. The proposed deal with the Tosco Corporation offers the prospect of a secure and prosperous future for the refinery and the terminal in the context of a major player in the oil industry which has the resources and the incentive to operate and develop these assets in its own commercial interests. This means that the contribution that these facilities make to our oil supply security are thereby secured at least cost to taxpayers and consumers and on a basis that represents a significant improvement on the State's own ability to make commitments under the MR or any possible alternative support mechanism. Although not a household name on this side of the Atlantic, Tosco Corporation is a multi-billion dollar undertaking whose resource base will increase later in the year when it is expected to merge with the US oil giant, the Phillips Petroleum Corporation. Already the third largest refiner and marketer of oil products in the US, Tosco enjoys substantial benefits in terms of operational scale, technological capabilities, business integration and operating synergies that could never be replicated for Whitegate as a stand-alone facility. The INPC facilities will find a niche within the overall Tosco business plan, adding value to the extended Tosco family while continuing to serve the Irish market.
Acquiring the Irish facilities is a very significant first step outside the US for Tosco and not one that the corporation is taking lightly. From a purely business perspective, Tosco has not only the resources but also the clear incentive in terms of its own self-interest to honour its commitments under the proposed transaction by making a success of its acquisitions in this country, now and in the longer term.
The Bill before the House contains provisions which are a prerequisite for completing the proposed transaction and are consequently necessary to ensure that Ireland secures the benefits I have already mentioned. It has been clear for some time that because INPC is not a statutory State body, legislation of this kind would be necessary to underpin the proposed transaction. However, it was only in recent weeks, with the signing of the legal documents, that we had an assurance that there was a definite deal on the table and a clear indication of the provisions that would have to be enshrined in the proposed Bill.
The Bill contains two principal provisions that go to the heart of the Minister's functions in relation to the completion of the proposed sale. In the first place, section 6 empowers me, with the consent of the Minister for Finance, to authorise INPC to dispose of its assets, including its shares in the subsidiaries that operate the refinery and the terminal, to the purchaser, and this is obviously fundamental to the whole transaction.
The section also allows me to authorise the INPC to make payments in relation to the establishment and funding of a trust in order to provide for an employee share ownership plan, or ESOP, to facilitate the proposed sale. The establishment of such a scheme in order to secure the co-operation and assistance of INPC's workforce in the implementation of the new arrangements is a pre-condition for the completion of the deal. Following a number of meetings between union representatives, the company and officials of my Department and the Department of Finance, agreement has been reached on a specific offer in relation to a proposed ESOP which the unions have recommended to their members. I further understand that the offer is currently the subject of a ballot, the result of which should be known in the near future.
Section 7 gives me the authority, once again with the consent of the Minister for Finance, to provide a guarantee in respect of certain potential liabilities of the INPC. Such a guarantee is not unusual in a transaction of this kind. The potential liabilities in question, which include potential environmental risks, are based on the general principle that INPC is liable for issues which pre-date the sale while Tosco will be liable for matters relating to post-completion circumstances. However, within that general framework, and as a result of the very hard bargaining that took place on this particular aspect of the proposed transaction, there are now very significant limits in place in terms of both time and money on the extent of INPC's – and hence the State's – potential exposure. In money terms, that liability is capped at US$75 million and the terms of the guarantee will expire over varying periods, the longest of which is 12 years, depending on the nature of the risk.
The one exception to the above relates to the jetty at Whiddy Island which was destroyed by fire in the 1979 disaster. The derelict structure is completely non-productive and neither Tosco nor any other commercial company could be expected to take responsibility for it. Consequently, the State will continue to bear the potential liability it acquired in relation to the jetty when it took over the terminal in 1986 and for which it was compensated at the time.
I have been advised by the INPC that it should be possible to insure against the environmental risks covered by the guarantee for a relatively modest once-off payment and the company is actively pursuing this aspect at my request.
The Bill requires the Minister for Public Enterprise on an annual basis to lay before each House a statement setting out the amount of any payment which was made during the year under the guarantee together with an indication of the amount covered by the guarantee that was outstanding at the end of the year.
The State's interest in INPC's facilities over the years has been rooted in the contribution which they make to security of oil supply. A further major element in our oil security apparatus is the maintenance of a 90 day oil reserve in line with our obligations in the context of EU legislation and the emergency oil sharing arrangements maintained by the International Energy Agency. Since 1995, responsibility for maintaining these reserves has been a matter for the National Oil Reserves Agency, or NORA as it is more com monly called. Although NORA is a subsidiary of the INPC, I have expressly excluded it from the terms of the proposed sale. NORA does not perform a commercial function but acts as my agent and is the custodian of oil stocks which have been acquired on the basis of a dedicated levy on consumers and taken out of the market to be set aside for strategic purposes. Arrangements are being made to ensure that NORA will continue to function within the public sector. The agency, which had separate representation throughout the talks with Tosco, will enter into arm's length commercially based contracts in respect of storage of a volume of its stocks at Whiddy and Whitegate. This is only to be expected as NORA needs to have stocks in Ireland for strategic reasons and the main available tankage is situated at Whitegate and Whiddy. NORA has other commercial storage contracts at home and abroad and will continue to welcome further competitively priced bids from storage providers.
To provide a clear legal basis for the safeguarding of strategic stocks in the context of the Tosco transaction, I propose to table an amendment on Committee Stage which will allow me, notwithstanding the provisions of any other legislation, to order, with the consent of the Minister for Finance, the transfer of the agency and its stocks out of the INPC. The proposed amendment will also provide for the transfer from INPC of the stocks which were acquired by the corporation in 1990 during the Gulf crisis specifically for strategic purposes, before NORA came into being. The intention is to ensure that these stocks can continue to be reserved for Ireland's strategic purposes as part of NORA's overall stockholding in the wake of the disposal of INPC's other assets to Tosco Corporation.
These are the provisions of the legislation that impinge directly or indirectly on the proposed sale. At the same time, some account has to be taken of the possibility, however unlikely it may be, that the proposed transaction for one reason or another might not proceed to completion. I am, therefore, taking the opportunity to include provisions in the legislation to permit a share sale to another purchaser or purchasers in the future and to allow INPC to implement an ESOP, in the event that the sale to Tosco is not completed.
Hopefully, these particular provisions will not have to be acted on and the transaction will go ahead to completion. For too long, the INPC facilities have had to operate a stop-gap arrangement characterised by uncertainty, limited planning horizons and less than optimum levels of investment. We now have the opportunity for the refinery and the terminal to thrive in their natural environment, as part of a major oil company, which has the resources, the incentive and the cultural disposition to invest in and develop the business. These strategically significant resources will be retained for the country, but on the basis of robust business models rather than artificial and ultimately inadequate support mechanisms. I am particularly gratified that the Government, in sanctioning the essential auto oil investment back in 1999 and in directing INPC's attention towards the potential for new commercial arrangements, was instrumental in bringing us to a position where we can look forward with confidence to a bright future for INPC's business and facilities and the contribution it makes to our economic life.
In some important respects, however, there will be no change. The facilities at Whitegate and Whiddy will continue to operate under existing regulations governing safety, the protection of the environment and the use of stocks in the event of an emergency, irrespective of the new ownership, and with the existing INPC personnel still at their posts.
I pay tribute to all those in INPC who have kept the oil flowing over the years. It is remarkable that despite what must often have seemed a bleak and dispiriting outlook, INPC and its staff can look back on an exemplary record on productivity, industrial harmony and safe and environmentally friendly operations. I know others join me in that tribute which is very deeply felt. I was twice there and I found the whole working environment extraordinarily friendly and co-operative. There is a great atmosphere in the place and all of the employees were extremely forthcoming and open. They are a great bunch at all levels including workers and management. They work very closely together and there are very few blocks between them. They seem to ebb and flow between each other in an extremely open way.
Now, for the first time in 20 years, there is the prospect of job security and career development as part of a major oil company that has the ability and the motivation to invest in its people and its plant. I congratulate INPC management and staff past and present on their achievements over the years. A word of appreciation must go to the board and its chairman together with the chief executive officer and all those whose enthusiasm, dedication and sound instinct for a good business opportunity have brought us to the threshold of a new lease of life for INPC and its people.
Last week, senior officials of my Department and the chairman and chief executive officer of INPC met the Joint Committee on Public Enterprise and Transport to explain and discuss what is involved in the current proposals. They were very courteously received and I know my officials considered the forum to have been a very positive and useful means of addressing and clarifying concerns, which are no doubt shared by other members of the House. I hope the committee members found the occasion equally worthwhile and that it will have compensated in some measure for the limitations, which have of necessity been placed on the time available to debate the matter here in the House.
I commend the Bill to the House and I look forward to participating in this evening's debate.