In view of the peculiar circumstances, the Chair is allowing Senator Sheehy Skeffington to move his amendment which will be discussed as a whole. However, should it be necessary to put separate questions, they can be put on Nos. 1, 2 and 4. No. 3 is, of course, consequential on No. 2.
Waterford Gas Order—Motion of Approval (Resumed).
I move the amendment standing in my name:—
After "approved" to add:— subject to the following modifications and addition:—
1. Deletion of "£7" and substitution of "£6 10s." in Article 5, paragraph (1), line 25.
2. Insertion of "the dividend rate to be subject to a sliding scale as set out in paragraph (2) of Article 5" before "and" in Article 5, paragraph (1), line 26.
3. Insertion of the following new paragraph (2) of Article 5:—
(2) The standard price of gas shall be 3s. 0d. per therm, and dividends may be permitted to rise or fall from the rate of 6½ per cent., prescribed in paragraph (1) of this Article, at the rate of ? per cent. for every 1-5d. per therm below or above the above standard rate.
4. Deletion of Article 15.
I have no special objection to considering all the parts of the amendment together, though I am a little surprised at being asked to have them all considered as one item, because the principles involved in the fourth part of the amendment are quite different from those involved in the first three parts. As I read the authority cited by the Minister in making this Order— he cites the authority of Section 10 of the Gas Regulation Act, 1920—there is nothing in it which precludes separate modifications from being made. Section 10 (4) of the Gas Act, 1920, provides:
"Before any special Order under this Act is made, it shall be laid in draft before both Houses of Parliament, and such Order shall not be made unless both Houses, by resolution, approve the draft, either without modification or addition or with modifications or additions or which both Houses agree,..."
The Senator understands that he can have separate decisions on Nos. 1, 2 and 4?
I think it is important that we should be able to make separate decisions. In that case, I will simply state my case as briefly as I can for the modification of this Order. At the outset, I want to say I am glad the Seanad gave me time and permission to introduce this type of amendment, even though it be not usual in the consideration of such Orders. Even though usually, it has been said, we simply pass such Orders, I think to it is well that we should not regard ourselves here, in passing Orders, as merely fulfilling a formality.
I think if we are conscious of our duties here, and of our rights, we ought to make ourselves aware of just what is the thing we are passing and whether or not it could be improved by us. I am glad of being given this opportunity of demonstrating that we do not think that the Seanad is simply a rubber stamp and any modifications suggested by it are, in any sense,ultra vires. The fact is that this company is asking for the right to multiply its capital by three, to raise its capital issue to £250,000 from the present £80,000. I think it is an important thing that it must ask for the power to do that.
I should like to say, by way of further preliminary, that, in my opinion, the Waterford Gas Company has an extremely good record of service and it is well thought of by the people it serves and has served. I think it is recognised, in war time particularly, that their capacity to offer a continuous service was better than some of the bigger companies. Therefore, what I say is not intended as a criticism of this particular company which has given good service to the consumers.
I notice that its head office is in Cork. I do not know whether its great efficiency and drive is due to that fact, but, whether it be Cork or Waterford initiative, I think it deserves credit. The service they provide, however, is in the nature of a public utility almost like the supplying of water, the maintenance of roads or the maintenance of telegraphic or postal services. It is a public utility service basic to the life, not only domestic but commercial, of the area. In a basic utility service like that, a rise in price will affect a wide social and economic area, both private and industrial. If, to run this company as a private company, the terms of dividend and so on, have to be made so attractive that the price of gas will have to be inordinately high, then I suggest it is not the best way in which the Government should deal with the provision of gas in that area. I would prefer not merely to see it a municipal concern but to see all that kind of public utility taken over as a local authority responsibility of some kind. I do not think it is the kind of concern which should be isolated and floating a loan from the profit seeking public.
If a high dividend were not based on a high price, if, on the contrary, it were linked with a low price—it used to be the practice in the City of Waterford Gas Company when dividends used to be subject to a sliding scale, and I quote from a descriptive leaflet—"Rising or falling by ? per cent. for every 1/5th of a penny per therm above or below the standard price"—if a rising dividend had to be linked with a lowering of the price of gas, quite obviously the investor and the consuming public would be satisfied and the consumer would not have legitimate grounds for complaint at a high dividend.
It is for that purpose that I have suggested a link—which is not a new idea—between the level of the dividend and the level of the price of gas. I believe that in such a way the company will have a sharp incentive to reduce the price and that it would be the best method of getting the right to raise the dividend. The fact that such a company must come before the Oireachtas in order to ask for permission to do certain things implies our right to examine them. Consequently I asked the Minister for certain facts, which I think would be of interest to the Seanad, fact about such things as net profits in recent years, and in relation to Section 15 in particular, the amounts of reserves accumulated, because Section 15 deals with the distribution of so far undistributed profits in the future.
I think the Seanad will be interested in the Minister's reply. I wrote to him and in his reply to me on the 10th December he gave me an answer on the price of gas and said:
"In regard to your request for information about net profits, dividends and reserves the position is that no information can be furnished as it relates to the confidential matters of a private concern, information which is supplied to the Minister in confidence for examination in the prices division of his Department."
He goes on to assure me that they will very carefully examine whether the price should go up or not. I suggest that the Seanad would be interested in such matters as net profits, reserves and so on—I hope I was right in thinking that—but the answer one gets is that it is a "private commercial concern" and so on. Without these facts, I think we are not able very fully to consider the terms of the case.
My proposals are specific. The first is that in relation to Article 5, paragraph (1) which lays down that the dividend rate shall not exceed 7 per cent. I am suggesting it should not exceed 6½ per cent. My second suggestion is that that 6½ per cent. should be linked with the price of gas on a scale which I set down in my third suggestion and which is based on a standard rate of gas of 3/- per therm, which is by no means cheap. I am by no means suggesting something which is impossible of realisation and I am asking that, as the practice was in the past, a variation of ? per cent. in the dividend should be allowed for every ?th of a penny in the price of the therm: where the price goes down by ?th of a penny that the dividends might be permitted to go up by ? per cent.
That seems to me to be a realistic challenge to the company and I do not think that in any way it harms the interests of the investing public, a challenge to link their future potential dividends with the price of gas to the consumer. I recognise that in suggesting 6½ per cent. I am suggesting a very high percentage and I would have preferred to suggest 5 per cent. I can see that 6½ per cent. might be necessary, but I am asking in my third modification that the dividend rate be linked with the price of gas.
My fourth proposal is of quite a different character. It is for the deletion of Article 15. That article says:—
"The company proposal may in general meeting from time to time by resolution capitalise the undistributed profits of the company by making an issue of ordinary stock to be distributed by way of a bonus to the holders for the time being of the consolidated stock of the company."
On the discussion we had the other day on this matter I suggested that this is simply a concealed way of getting round Article 5. In Article 5, we pretend that we are going to fix the dividend rate at a maximum of 7 per cent., but by Article 15 we allow the company by implication in limiting its dividend to 7 per cent. to amass an amount of undistributed profits— amounts and reserves, in respect of which the Minister is not prepared to give me figures and possibly in the future he will not be prepared to do so —and give them out, not, of course, as increased dividends—he would not do such a thing as that—but as a fresh amount of stock, as a bonus on ordinary stock upon which stock in turn 7 per cent. will be paid.
I am not afraid to use strong words. I think that Article is a dishonest one. I think that it is quite dishonest to pretend in an earlier paragraph that we are going to limit the dividend to 7 per cent. and at the same time we are going to allow a distribution of a bonus every now and again of what are called "capitalised undistributed profits" in the form of fresh stock which will bear, in turn, a dividend return of 7 per cent. I would stress the fact that such undistributed profits are undistributed, because (a) of this limitation on the dividend return and (b) of the fact that the price of gas has been too high, that, in other words, you could have given a bonus, if you like, in terms of a gas price reduction to the consumer, but you prefer to maintain the price of gas and allow undistributed profits to pile up and give them out then, not as dividends, but as bonuses "from time to time," as the Article says, "at a general meeting of the company".
To my dismay, the Parliamentary Secretary in this House replied to my objection by saying that his Department would see to it in secret, behind closed doors, without giving any information to the Dáil or Seanad but in his inner sanctum of the Prices Section of his Department—I think I am not misinterpreting him when I say he would give his word—that there would not be any such thing as undistributed profits piled up.
I did not say that. I said any very large profit. I did not say "undistributed profits".
In other words, there would be no enormous sums of undistributed profits allowed to pile up.
That is right.
Who then is intended to be the victim of this section? I think the person from whom we are trying to borrow money has to be convinced that there is going to be a very nice little distribution of "capitalised undistributed profits" from time to time, but the consumer must be assured that that will hardly ever happen. The investing public will be told: "You just wait. You let it slide for a bit and you will find they will have forgotten about this fact." I put it to the Seanad that if, in fact, there are not going to be, in practice, these accumulations of undistributed profits, this section has no purpose at all and can be deleted. If we accept that we do not want that sort of thing to happen, we are in a position to decide —and now is the time to decide—to delete this section.
Like Senator Sheehy Skeffington, we are all, no doubt, interested in the welfare of the consumers of gas, but, while that is so, we must also look at the other side of the picture and ask ourselves if, in fact, a company like this gas company has not to operate on a purely commercial basis, because, if they did not so operate, they would not be able to continue in business. Everybody knows that.
It is, of course, a popular thing to say that the consumers should get cheaper gas, but at the same time we must not run away from the fact that this is a public utility business and that it has to be kept going. I think all Senators will agree with me in that point of view. Senator Sheehy Skeffington advocated a reduction in the rate of dividend to £6 10s. and he mentioned that perhaps 6 per cent. or 5 per cent. would be enough.
Would anybody say at the present time, in the present state of the stock markets and so on, that 5 per cent. would be a sufficient rate of dividend to induce people to invest their money in this public utility service or even 6 per cent. or 6½ per cent. because, as Senators will remember, quite recently we had a National Loan floated at 5½ per cent. and that was a gilt-edge security?
It was two points below par and still the public were not prepared fully to subscribe that loan. We have to face facts as they are. We have to be realists in a matter like this just as the people who conduct this public utility undertaking have to be realists. They have to face the facts of the case.
There is another aspect of this which I should like to bring to the notice of the Parliamentary Secretary. Under the 1920 Act, these gas companies are bound to put their case before the Houses of the Oireachtas and the Minister. They have to have recourse to a rather cumbrous kind of machinery. When that Act was passed, there was no other public utility service of its kind. Now there is. We have the E.S.B. in operation now and we have the position here that this gas company has to go through all these rounds before they can increase their dividend and before they can increase their charges to the public, even by the slightest fraction. But the E.S.B. can come alongad lib. and increase their rate without having recourse to anybody.
They have to go to the Prices Advisory Body.
They certainly have not to go through the process the gas company has to go through. They have not got to come to the Houses of the Oireachtas and have their case made the subject of a debate.
Because the Oireachtas gave them that power.
Would the same thing not apply all round? As regards the rate of dividend, I must say I cannot follow the argument that a dividend can be increased when the cost per therm of gas is decreased. How can that be?
It might be by efficient production.
If you clamp down on dividends, you are clamping down on initiative and efficiency. You are putting a tax on efficiency and I do not think that is right. In the light of present circumstances and of the financial position here and generally, I for one, do not regard the rate of interest mentioned here as being excessive. I am as much concerned about the consumer as anybody, and I am sure that if the consumers got a better alternative service to that provided by the gas company, they would avail of it.
I should like, first of all, to agree with Senator Sheehy Skeffington on one point—I do not think I could agree with him on any of the others he has made here to-day. The first point is that I think it was a good demonstration that was made in querying this Order because, perhaps, we have been too lax in rubber-stamping Orders of this kind in the past, and in that way, I think the Senator has done a very good job here to-day.
After that, I must say I part roads with him. As I said the last day when he raised this subject, we all know that he is a very sincere parliamentarian and, in fact, I do not think there is any subject that comes up in this House on which he has not something to say. At times, he has some really good things to say, but I am afraid this is one of the occasions on which he does not really know what he is talking about. This happens to be a business matter and when it comes to business, there is no use in theoretical ideas of what would be nice or good. This is a question of hard facts, a question of a company with a capital of about £80,000 which now wants to increase that capital to £250,000 in order to expand and give increased service. It is not to give increased dividends, as he seems to think, but to give increased service to the community.
The company tells us that in order to do this they need extra money. Anybody who is awake and has his eyes open to-day must know it is a particularly bad time to get capital for any purpose. There is competition of all kinds, and it is really a case of a large number of demands chasing a small number of people with money, or savings, or capital available. In fact, it is the whole theme of the present Minister for Finance that we need savings and capital to get on with our national and public life. That being so, before we can talk at all about the price of gas we must find out how and where we can get capital. Anybody knows to-day that to suggest you can raise capital at 5 per cent. for what, in fact, is a risk enterprise as distinct from a gilt-edged security, as has been pointed out, is simply wishful thinking.
As has been said, the State offered a £12,000,000 loan recently at 5½ per cent. interest at 98 and got only £8,500,000. That is the situation in which the Waterford Gas Company wants to get money and is it seriously suggested in this Seanad that it can be got by talking about the amount of 5 per cent. which has been suggested, although the actual figure mentioned in the amendment is 6½ per cent.? It is completely unrealistic to suggest such a thing and if we persist in doing what Senator Sheehy Skeffington suggests the net result would be that Waterford Gas Company would not get any money, and what is the good of talking about the price of gas if there will be no gas company and no gas?
I suggest it is futile even to discuss this matter on the basis put forward by the Senator and,apropos of this, I would like to say that we are suffering in this country at present because too much notice is given to the kind of talk we have had from Senator Sheehy Skeffington. Only to-day there is in the newspapers a report by O.E.E.C. on this country— we have had others already—that there is a growing awareness in the community that what is wrong with the country is the fact that there is not nearly sufficient regard for capital or for savings. If the Ministers and Government leaders appeal to the people to save and invest in our industries so that we can create more wealth both for internal consumption in order to improve the standard of living and pay for necessary imports, we should, in that situation, be talking about more profits and about more rewards for capital invested, but—I am always careful to add—with, at the same time, efficient and good service to the consumer.
I suggest that the consumer in his own interest should take third place in the present situation. At present, it seems that the consumer has been trying to take first place all along and it was a short-sighted policy because he has placed himself now in a situation where goods are scarcer, the value of money depreciating, and goods and services lacking. In those circumstances, I think the proposal before us is quite unrealistic and I would advocate that it be rejected and that the Order should go through as originally proposed.
Listening to the last speaker and the previous speaker, I felt that we are very far from reality, just as far as Senator Sheehy Skeffington. We are told that the only hope for the country is in more profits, and less privileges for the consumer. If that is not far removed from reality, I do not know what is. The only sympathy I have with Senator Sheehy Skeffington is that we have company law which should have been changed years and years ago. That company law is based on an Act of 1908 and, since then, the British have changed their law twice, but we have such a sacred regard for company law that we have kept it——
I am afraid the Senator is going very far away from the proposal in the amendment.
All I have to say is that Senators McGuire and Kissane are very far from reality when they say: "Leave things as they are; try to safeguard vested interests and everything will be all right so far as this country is concerned." I am entirely opposed to this view and I would be prepared to go very far with Senator Sheehy Skeffington if I thought company law would justify it, but it cannot justify it.
Here we have a company, and when we ask what are its profits and reserve funds, we cannot be told. Does that not show the defects of company law? The sooner we think seriously about the affairs of this country, the sooner we will be able to stand on our own feet economically and politically.
Senator Sheehy Skeffington to-day raised a number of points and one of them was his suggestion that the price of gas in Waterford was inordinately high. He threw out at one time a suggestion that if this company was taken over by the local authority, gas might be provided at more reasonable prices. To my knowledge, where local authorities are running gas concerns, the price of gas is much higher than it is in Waterford.
He also mentioned that he had written to the Minister or to the Secretary of the Department asking for details as to the net profits and reserves of the company. These figures are supplied in confidence to the Prices Branch of the Department and I could not disclose them, but if the Senator had written to the Waterford Gas Company, I have no doubt they would send him their published report and I have just taken that report——
They would be just as much hidden there.
These figures are obvious to anybody in the published report. The profit for the past year was £9,773 and this includes a profit of £1,042 on the sale of coal.
What were the reserves?
I did not look for these but they were quite normal. The effect of the first proposition in the amendment would be, as is obvious, to reduce the dividend rate which they could allow from 7 per cent. to 6½ per cent. In 1952, we passed through the House the Dundalk Gas Order. In 1954, we had the Wexford Gas Order and these embody limitations of 7 per cent. on the preference shares of both companies. The Waterford Gas Company felt that at the present time, with money costing so much, the lowest rate of dividend at which they could hope to attract any subscriptions would be 7 per cent. I feel, and I think the Seanad will agree with me, that that is not unreasonable when, as has been mentioned by Senator Kissane, gilt-edged Government securities have been offered at 5½ per cent. interest, plus capital appreciation, and as we all know they were not oversubscribed.
That is because of the system we are trying to operate.
And that system has to operate for the Waterford Gas Company.
Because the system is there.
As long as we leave it there.
And the price of coal has gone up.
While they cannot allow any more than 7 per cent, if they feel they can get money at a lower rate, they are quite free to do so, but, as the Senators will know, these are preference shares which have a fixed rate of interest. In the case of an ordinary dividend, they pay 6 per cent., but this is the preference share which is fixed, and, whether times are good or bad, they pay the same rate. With ordinary shares, if times are good, they increase the rate and if times are not so good, they can decrease the dividends.
As regards propositions 2 and 3, the suggestion is that a sliding scale system be introduced, that is, when the price of gas would decrease, the dividend rate would be increased, and when the price of gas increased, the dividend rate would decrease. These sliding scale arrangements were in force in, I think, six or seven gas companies, but have been suspended for some time. They were suspended by Emergency Powers Order and they have been replaced by ordinary price control arrangements by the Prices Branch of the Department. The sliding scale does not work so effectively where prices are unstable and where you have large increases in the costs of the main requirements, such as the increase occurring last year of 27/- per ton in the price of coal, and also increases in wages and other costs.
I might mention in passing that the Waterford Gas Company did not increase its prices for the first 7,000 cubic feet of gas when they had to bear that increase of 27/- per ton, but what they did was to increase the price to the larger consumers, which was at that time 1/10½d. per therm, a very low price.
Since I began to speak, I have been told that the reserves of the Waterford Gas Company—to satisfy Senator Hickey—stand at £18,000.
To deal with proposition 4, the last one, concerning the deletion of Article 15, I would say that Article 15 empowers the company to consolidate undistributed profits and distribute them by way of bonus to holders of the consolidated stock of the company. It is most unlikely that any surplus profits could accumulate so long as price control remains in force.
The company, in putting forward its case to the Minister for this Article, maintained that at some future date it may be better policy not to distribute the full dividend on consolidated stock, but rather to plough back some portion of the profit which the shareholders would be entitled to receive into the extension of the industry. That means that if, at a future date, the company wanted further capital and possibly did not want to go on the market to raise it, it could at that time, even when earning a very ordinary profit, instead of paying, say, 6 per cent. to shareholders, for a number of years pay 3 per cent. and leave the other 3 per cent. in the company to meet the cost of extension which might be necessary immediately and for which they could not see their way to raise new capital.
I think it is necessary, and I might say it was agreed, that the Article should be inserted, but it was made quite clear to the company that this provision, if enacted, would not commit the Minister in any way in relation to any matter affecting control of profits or prices. I think the Waterford Gas Company is to be congratulated, as a Senator mentioned earlier, on the manner in which they have run their business, giving good service on proper business lines. As Senator Kissane mentioned, they now have to compete with another public utility, and are up against intense competition from the E.S.B. We all know from our reading of the papers that several gas companies have closed down. Perhaps we do not mind that so much in the case of small towns, but during the past year Carlow Gas Company which supplied a very considerable town with a population of 7,000 or 8,000 people had to close down because they found costs too high.
I think the Waterford Gas Company is doing a very good job and seems to be running its business so well that not only are they not thinking of closing down but they are thinking of extending. That is the purpose of this Order—to raise money to extend the enterprise. I am sure every Senator here will be very pleased to hear that and very pleased to support this motion as I moved it. Of course, Senator Sheehy Skeffington has brought out the full details of the case, if that were necessary after what I said in my opening statement.
The Senators will understand there is no Committee Stage in this matter.
I was rising to reply.
There is no reply.
The Senator is entitled to seek further information by way of question.
Am I not entitled, having proposed a motion here, to reply?
Not in this instance, as this is an amendment to a motion.
The Senator is entitled to seek information by way of question.
There are a few questions I might ask in a row in order to avoid rising three or four times. The Parliamentary Secretary stated that the company felt that the lowest dividend on which they could raise money for investment, at present, was 7 per cent. I would ask the Minister in that case, why did he make that a maximum? If it is the lowest rate, why is it a maximum in his Order?
I said it would probably be the lowest and that probably they would require that rate at the present time.
Is the Parliamentary Secretary not being a little unfair to the company when he says it is going to be the maximum?
There is only one figure. The dividend will not be changed in this case because it is not movable.
Another question I would like to ask the Parliamentary Secretary is this: he made a very good case for the company's contention that they would like to plough back undistributed profits, but Section 15 does not permit them to do that. It permits them to capitalise undistributed profits and give them out as bonus shares to be interest-bearing. Therefore, I do not quite understand the defence of Section 15 on the grounds that they want to plough back——
When they do plough back the profits—if they do not distribute them—they are entitled to capitalise the profits which have been ploughed back. It is an ordinary commercial transaction which any company may do to bring up its share capital. A very large company in the city is doing that at present.
Does the Parliamentary Secretary agree with the contention by one Senator that what is really required is more and more profits if you really want to get the money and, therefore, would he not be better advised to put no ceiling on dividends? I was surprised that that Senator——
He would be better advised, provided——
The procedure is that a motion is moved. An amendment, if it is in order, is moved by a Senator. Then the mover of the motion concludes the debate. That has happened in this instance. Senator Sheehy Skeffington has no right to reply now. He may speak only once, like any mover of any amendment. The Chair has given him an opportunity of asking questions, but they should be for information and not for argument. There is no use in trying to prolong the debate by asking the Parliamentary Secretary if he is in favour of something that somebody else said about something else, which is very general. I suggest we have given Senator Sheehy Skeffington a very fair hearing.
Is this a speech?
It is a statement. The debate has been concluded. I suggest we should take a decision on it.
Unless Senator Sheehy Skeffington has any further questions to ask directly bearing on this matter, we shall have to close the debate.
I would just ask if the Parliamentary Secretary thinks it would——
That would be the Parliamentary Secretary's opinion. That is not a question at all.
I would ask the Parliamentary Secretary to justify his placing of a ceiling on dividends in this motion. Why is there a ceiling? Why is the dividend limited? What is the point of limiting it? If it is going to have higher and higher dividends, why does the motion in fact limit the dividend?
The Chair cannot allow the debate to continue on these lines.
That is the amount the Waterford Gas Company asked for. They cannot go any higher.
We will have separate decisions on propositions 1, 2 and 4. Proposition 3 is consequential on proposition 2. May we take it that the Senator will be satisfied that the decision on proposition 1 will govern the other two?
I think the principle involved in No. 4 is totally different.
The Senator is within his rights.
Proposition 3 is governed by proposition 2.
Proposition 3 not moved.
The Adjournment is being moved until next Tuesday when we shall have the Finance (Miscellaneous Provisions) Bill and also, I think, the Industrial Grants Bill.
The Seanad adjourned at 4.35 p.m. until Tuesday, 18th December, 1956.