Seanad Éireann debate -
Wednesday, 3 Apr 1963

Vol. 56 No. 9

Irish Steel Holdings Limited (Amendment) Bill, 1963—Second Stage.

Question proposed: "That the Bill be now read a Second Time."

Minister for Industry and Commerce (Mr. J. Lynch)

The purpose of this Bill is to increase the limit imposed by the Irish Steel Holdings Limited Act 1960 on the acquisition of shares in the company by the Minister for Finance from £4 million to £6 million, and on the guarantee by the Minister for Industry and Commerce of the repayment of moneys borrowed by the company from £500,000 to £1,000,000.

Senators will, no doubt, recollect that during the debate leading to the enactment of the Irish Steel Holdings Limited Act, 1960, I said that it was expected that the total cost of the work necessary for the implementation of the company's development and expansion programme would be of the order of £3½ million. During the course of the work, however, unforeseen circumstances have arisen and the cost of the development works is now estimated by the company at £5,020,000, of which they will provide £131,268 from their own resources.

The factors contributing to the increase can be broadly classified as follows:

(1) As the works progressed it was discovered that the subterranean conditions were very bad and more and deeper excavation was found to be necessary, and the foundations on which the new machinery was to be mounted had to be greater and more complex than originally foreseen. These foundations are, of course, an essential part of the development programme and could not be curtailed.

(2) Wage increases granted to the building and allied trades since 1959 increased civil engineering costs.

(3) Certain additions and extensions were found necessary to provide for improved efficiency and economy of operation.

(4) The company were unable to recruit the number of skilled Irish tradesmen required, and in consequence they were forced to utilise the services of a considerably greater number of foreign technicians at increased cost.

(5) The revaluation of the Deutschmark in March, 1961, further increased the cost of certain subcontracts.

In addition, it is necessary that a further £250,000 be provided for working capital in the exceptional period between the installation of the plant and its coming into full commercial operation. Certain parts of the new plant are undergoing protracted tests, and this will occur as each unit of the new mills is installed. In addition, certain teething troubles are to be envisaged. The cost of material and labour on this unproductive but necessary development work is accepted as a commissioning cost which should properly be provided out of capital.

The sum of £6 million includes provision of a reserve of £750,000. This provision is being made in case the advance of free trade should lead to proposals for adaptation of the works to fit into an economic framework wider than, and different from, that at present envisaged. This money is not committed to any purpose, and none of it can be used until a fully detailed plan involving its use has prior examination and approval by the Government.

It is also proposed that the limit of £500,000 imposed by the 1960 Act on guaranteed borrowings by the company should be increased to £1 million. When the figure of £500,000 was fixed in the earlier Act, it was in mind that this figure would be additional to the then existing limit of £300,000, guaranteed under the State Guarantees Act. The legal position is, however, that the total guaranteed borrowings under the 1960 Act are limited to £500,000, which is insufficient to provide working capital for the extended operations of the Company. A margin is also required to cover, temporarily, further plant extensions, if such should prove necessary, in the event of free trade conditions arising, either by reason of our joining the European Coal and Steel Community or otherwise.

In this connection the company were asked to examine their possibilities in free trade conditions and have stated that they are satisfied that it was essential to press on with their plan to expand but that in free trade conditions it might be necessary to rationalise or specialise to a greater degree than is now visualised.

It is, of course, a matter of concern to me that the original estimate should have been so far short of eventual requirements and I can assure the House that every possibility of confining expenditure to the original estimate has been thoroughly explored. I have gone even to the extent of considering the possibility of curtailment of the development scheme. I was satisfied, however, that this course was not practicable. It is clear that Irish Steel Holdings Limited are in business in a highly competitive field and the viability of the company, and the security of the employment of their labour force of some 700 workers, can be assured only if their operations can be carried on at the highest level of efficiency. The development works now in progress are designed to bring about this position.

I have also satisfied myself that all reasonable steps were taken by the Company throughout to obtain the best advice available and to endeayour to keep expenditure as close as possible to the estimate. It has proved that they were exceptionally, and un-foreseeably, unlucky in regard to foundation conditions which could not be examined beforehand. This is a hazard of large-scale foundation work, particularly in conditions, as here, where the site concerned was occupied by existing heavy plant which had to be maintained in operation to the latest possible moment, in order to minimise interruption of output.

The other factors of wage increases, labour shortage and currency revaluation were equally unforeseeable.

As regards the modifications of the original plans, these arose under various heads: it was hoped to use certain existing electrical equipment, but this proved to be impossible; the steel-making department buildings were strengthened to make them suitable for handling hot metal, as the future availability of this material has come to be considered possible; some additional electrical equipment was provided to cope with extra mechanisation which was considered desirable. The company's basic plans, as approved by the Government and described to the House, are unchanged.

While the House, like the Government, will be concerned at the large increases in the cost of these works, I am sure it will be agreed that there is no practical alternative to completing the developments as planned. I believe that the proposal to continue the development of this nationally important industry even at the increased costs will meet with the same general welcome in this House as it did in the Dáil. I confidently, therefore, seek the approval of the House for the Bill.

Professor Hayes

This is the kind of Bill about which it is very difficult to speak. It involves the employment of a certain number of people and the argument is always used that if the State does not go further than it has gone already, that employment will be imperilled. It seems to me at the same time that we should give the matter more consideration than it apparently has got. What is happening is that a private company was taken over a few years ago with permission to invest £4 million of public money in it. Now after three years the Minister desires to increase that amount by 50 per cent from £4 million to £6 million and to increase the guarantee on the part of the Government from £500,000 to £1 million, that is, to increase the possible amount of investment by 50 per cent and to double the guarantee for loans which the company may be successful in getting elsewhere.

Does the additional expenditure in a State company make this company capable of surviving? The Minister's speech was very carefully drafted and his answers to questions in the other House were very careful also. I hope he will forgive me for saying that it seems to me from having read them that he is himself by no means convinced that what he is doing now will, in fact, make the company capable of surviving. For example, a certain amount of money, £3½ million, was first invested and it was said that certain subterranean borings and experiments could not be carried out to make sure that there was a proper foundation for the factory, but an unskilled person like myself certainly would come to the conclusion that if private people were investing £3½ million in something, they would find a method of getting engineers to tell them whether the foundations of their factory were sound or not.

One of the Minister's arguments is that it is necessary to put the company into a position that would fit into a free trade framework. That is something we do not really know much about. I wonder is this company capable of surviving in a free trade framework. For example, has it ever paid dividends? What percentage of its production is exported? What provision is made for paying interest on the money that has been invested? Is there any provision for repayment of capital?

When I say that, I am not from the point of view of doctrine or philosophy opposed to State enterprise. I entirely agree that there are certain things in this country which will not be developed by private enterprise and which should be developed by public enterprise. There are some people who are now in favour of public enterprise as opposed to private enterprise. If we get many more examples like the present one the very idea of public enterprise may become very distasteful. If we invest a certain number of millions of money in public enterprise and after a couple of years we find that we have to increase the amount by 50 per cent, the whole idea of public enterprise will suffer considerably. If State enterprises such as this are in preparation, and if it is proved that it is more and more costly and less and less remunerative, the whole idea of State enterprise will suffer considerably. Those who advocate it should remember that.

I should like to see State enterprise being successful. The desirability of this kind of thing is undeniable; to me, the desirability of giving employment, and particularly to men, is undeniable, but I do not think we are quite clear—and I doubt if the Minister is quite clear—whether this kind of thing is business enterprise or social service. If you are going to invest millions of public money merely for the purpose of giving employment, you will always be in the position which we find in more than one enterprise already that at a certain point you are confronted with the dilemma that if you do not spend more money, people will be put out of employment, a situation which no one contemplates calmly.

It seems to me that if you have enthusiasm for public enterprise and a loose investment of public money in State enterprise without a cold examination of the facts and without sufficient preparation, that will be harmful in the end to the whole idea of State investment. I do not know whether the Minister can tell us if any dividends have been paid. Am I correct in saying that the Minister stated that only three per cent of the company's products are exported? Is that correct?

Mr. J. Lynch

I hazarded that as a guess in the Dáil.

Professor Hayes

I see. For example, how does the price of the product compare with the price in other very large companies? I am unskilled in this matter but I know— and I suppose everyone knows—that we may possibly be in a combination with Britain and other countries. Britain has immense steel companies with immense resources and great experience and, I presume, with low production costs. I wonder how this company compares with them? I wonder has it paid any dividend? I wonder when we invested this money in the company was any provision made for interest on it, or for repayment of capital?

I say that not as a hard-faced businessman, which I am very far from being, but because it seems to me that if State enterprise of this kind cannot be made more remunerative than this appears to be, the whole notion of investing public money in this way will become repugnant to a great many people, including some people who are by no means opposed to it at the moment. The Minister might clear up that point for us. When you begin that kind of thing there does not seem to be any end to it. You lose the money you have already invested if you do not go on. It seems to me that we are not quite clear in our minds as to the difference between business enterprise and a social service. Perhaps the Minister could clear that up for us.

Mr. J. Lynch

In the first place, I should like to say that in a matter like this I am not persuaded in any way by ideologies. As I said before, I am a supporter of State enterprise only in circumstances in which private enterprise is unwilling or unable to undertake certain necessary economic tasks.

I think this is a case in point. In this case private enterprise was in possession of the steel producing plant in Haulbowline for many years. The State, seeing first of all the necessity and, secondly, the opportunity for State enterprise in steel purchased that plant at a very low price. It set up a company and financed them by way of guaranteed borrowing. In other words, the company themselves did the borrowing under State guarantee. That was some 15 years ago and ever since, the company have been making progress, albeit they first of all concentrated on the home market and then succeeded in getting export outlets. I am told that the percentage I gave in the Dáil is about the extent of their exports.

Professor Hayes

That is three per cent.

Mr. J. Lynch

With the reasonable degree of success the company attained they were able to repay borrowings and make certain profits which it put to reserves. It was coming to the point when, with the limited resources and equipment they had in Haulbowline, there was a danger that, unless there was an injection of new capital and pretty major re-equipment, the industry would not survive. Senators will remember that in 1958 in the White Paper on economic development this was one of the ventures which it was suggested could be worth while as a State investment from every point of view. In the first place, we have very very few basic industries in this country.

There are certainly very few basic engineering industries. We have always been bemoaning the fact that we have none of these basic industries from which private enterprise industries might flow. This is one of those basic industries which the Government think it very desirable to have. It was for that reason that the project was included in the Programme for Economic Expansion and that the £4 million, which was provided three years ago, was put into the industry. There is no question of paying any dividend yet on that £4 million because, while it is share capital subscribed by the Minister for Finance, the development programme is still under way and it will be some time before that programme is completed and some further time before the company can make any profits.

When I came to the House on the last occasion asking for the £4 million for investment by the Minister for Finance, I mentioned that the company themselves were able to put up some £90,000 out of their profits. It is indicative of their progress that they have been able to increase that contribution out of their profits by up to 50 per cent notwithstanding that there has been a huge excavation operation going on in Haulbowline. Haulbowline is an island of rather limited space and it is occupied by the Naval Service. In order to carry out this re-equipment and development programme it was necessary to interrupt current production but it was sought to interrupt it only to the least possible extent so that I think it was a good achievement on the part of the company that they were able to keep going and even able to make money to the extent of increasing their investment, moderate though it may be, by up to 50 per cent.

The Senator asked what provision there was for repayment of capital. I think what I said answers that. It is investment of share capital by the Minister for Finance. As to costs, it is difficult at any time to say how the costs in a particular industry compare with the costs in another industry in the steel business because, as Senators know, most steel concerns on the Continent and throughout the world have a dual pricing system: a somewhat higher price for home markets and a lesser price for export markets. As I said in the Dáil, I asked Irish Steel Holdings to make a survey of how their prices compare with the Common Market countries and the answer they gave me was that their prices are higher than the lowest Common Market home prices and lower than the highest prices in the Common Market countries. I would not attempt to deny either that the price of steel products, mild steel bars and angles as they are produced now, and galvanised sheet is somewhat higher than could be imported from abroad. Again, one would not be very sure whether our home consumers would be able to do much better if they had access freely to foreign markets and if there were no steel producing plant in this country.

We all know that those big cartels which are prevalent in steel and for investment by the Minister for fertilisers, in connection with which I was here recently, can manipulate prices to suit their own production and to suit the kind of competition they might have to face in particular countries. I am not making any charge against any of the people who export steel to this country but I think we are businessmen enough to know that if there is not a steel plant in this country the tendency might be to increase import prices. As far as expansion is concerned, as I said, the stage has been reached when not to invest more capital, not to provide more equipment and not to expand production in the Haulbowline Steel Mills would mean that it would not be competitive in the freer trade conditions towards which we are moving. Therefore, the decision had to be taken either to increase the capital investment or let things grind to a standstill.

The decision was taken to increase the capital investment. Unfortunately, as I said, the amount envisaged and the amount which we thought would be required has, in fact, been exceeded. I mentioned the various factors involved. The Senator mentioned in particular one of them, the foundations. The position in Haulbowline is, as I said, it is an island. It has restricted space and during the year borings were carried out in advance of the new development. Unfortunately, as we know too well in many other respects, trial borings never present a complete picture of what is under the ground. As in mining, so in excavations only actual operations can disclose what is really underground and trial borings are often erroneous and do not present a true picture. Unfortunately, this happened in this case but it was rendered more difficult by the fact that the sea invaded parts of the excavations and rather expensive coffer dams had to be provided which were not envisaged in the original plant.

There were other factors as well. I mentioned the devaluation of the deutschmark and an increase in wages as a result of the eighth round and more so a sufficiency of Irish skilled men in the very specialised trades concerned was not available, even though it was anticipated they would be. There was a certain local competition at the time for these skilled men and the alternatives had to be provided by the sub-contractors from Germany at a very much increased cost. I mentioned a figure of the difference in cost as the difference between £10 and £3 a day, when speaking in the Dáil. I should like to point out at this stage that that does not represent a difference in wage rates being paid to the German and Irish technicians but rather a very substantial element of subsistence and travel charges.

That is the picture. I think the position now has been reached, even though I do not like to see extra capital involved in this undertaking, that if this operation is to survive, if we are to maintain employment for the 500 men who have been maintained heretofore, if we are to make provision for the 700 men who will be employed ultimately, not by way of social welfare but in circumstances in which they can be expected, in ordinary conditions, to earn their living in a reasonably competitive undertaking, then I think there is no choice open to us but to go ahead. I think, everything considered, that is a good choice and one which the Seanad should be confident about.

Question put and agreed to.

Agreed to take remaining Stages today.