The purpose of this Bill is to provide a statutory basis for the scheme of investment grants for ships which was announced some time ago. The Bill will enable grants to be paid to Irish shipowners in respect of approved capital expenditure incurred on either the provision of new ships or the conversion of existing ships. The level of grants will be up to 25 per cent of the expenditure eligible for grant purposes.
The Bill is designed to help Irish shipowners in the present highly-competitive conditions in the shipping industry. Their main foreign competitors enjoy State aid either by way of outright grants or favourable financing terms for capital investment. For example, Irish shipowners are in direct competition with British shipowners, both on the cross-Channel and deep sea trades and here the lack of State assistance for Irish shipowners assumed more immediate importance with the operation from January, 1966 of a British scheme of investment grants which provides grants for new ships or the conversion of existing ships. Accordingly Irish shipowners sought the introduction of a corresponding scheme of State assistance. The present measure provides for assistance to Irish shipowners on a similar scale to that available to British shipowners.
The Bill covers Irish-owned ships above a certain size operating in the coastal, cross-Channel and foreign trades in competition with foreign ships and engaged on normal shipping operations. Fishing vessels, for which special grants and other financing facilities are available through An Bord Iascaigh Mhara, and tugs, dredgers and other vessels not employed in normal shipping operations, are excluded from the scope of the Bill.
As an island nation we are almost totally dependent on sea transport both for imports and exports and the importance to the general economy of an up-to-date and expanding Irish-owned merchant fleet is obvious. Our economic well-being depends in large measure on the shipping facilities available to us and the national interest demands that as much as possible of the trade to and from this country should be carried in Irish-owned vessels. If some action were not taken now to put Irish shipowners in a comparable position as regards State aid to that of their main competitors, the inevitable result would be that the Irish fleet would contract.
At the very time when tremendous technological advances in the design and construction of vessels are taking place there would be no encouragement to Irish shipowners to take advantage of these various developments which are geared to achieve lower operating costs. The shipping industry also provides an essential service in its own right. While earning considerable amounts of foreign exchange it preserves within the economy a very large part of our shipping transport costs Again, a healthy, thriving shipping industry has a high strategic value in the event of an interruption of international shipping in periods of world crisis.
Sea transport in all its aspects is undergoing a revolution directed at modernising and rationalising the shipping industry and thereby reducing costs. This whole process of modernisation, aimed as it is at reducing unit costs, will, of course, help our export industries and enhance their competitiveness. Modernisation inevitably demands increased investment in new and more efficient ships and equipment. The low level of profitability experienced by shipping companies here and throughout the world for some years past has reduced the resources available for re-investment. Because of the absence of adequate profits, replacement of ageing vessels has had to be deferred. Unfortunately, this deferment undermined the competitive position of the companies concerned because the more modern replacement vessels are much more economic in operation.
The need for modernisation is exemplified by the case of the B & I Company which is replacing its uneconomic passenger vessels by new car-ferry vessels and converting its conventional cargo services to unit load operation. The increasing trend towards bulk carriers and container ships in the deep-sea trade has obliged Irish Shipping Ltd. to consider the reorganisation of its fleet. The company is disposing of a number of its older and less economic vessels and they recently brought into service a 34,000-ton deadweight bulk carrier. In addition, they have on order two 29,000-ton deadweight bulk carriers one of which will be built at Verolme Cork Dockyard.
The technological and other developments referred to are pressing even more heavily on the resources of the smaller companies. It is most important that these smaller companies should be in a position to modernise their fleets and compete more effectively in an industry so largely regulated by the economies of scale. I feel sure that the assistance provided for in this Bill will be particularly advantageous to the smaller Irish shipping companies as a supplement to their investment resources. Because of their inability to finance new tonnage some Irish owners in recent years have sold ships without buying replacements and have been forced to charter foreign vessels. The availability of a grant of 25 per cent of the capital cost should be a very real incentive to replace worn-out vessels and to modernise and re-equip existing vessels where this is practicable.
Depreciation is a heavy item in the operating cost of a vessel and the payment of a grant would reduce the annual depreciation charge by one quarter. Technological advances in ship construction are such that it is now necessary to provide for the full writeoff of the capital cost of a vessel over a much shorter period than heretofore and the relief afforded by a grant should go a long way towards offsetting the shorter economic life of a new vessel. At present the only concession enjoyed by shipowners which might assist them in financing fleet investment is the Shipping Investment Allowance of 40 per cent of the capital costs of a new ship which is available under the income tax code. This allowance is available for offset against profits and is in addition to the normal wear and tear allowance so that over the full life of a ship allowances of 140 per cent of the ship's cost can be offset against profits. In practice, however, this concession has been of little practical value to shipowners because the pretax profits earned by them have been too low. With the introduction of the scheme of investment grants for ships it is proposed to discontinue the special Shipping Investment Allowance of 40 per cent in a case where a grant is paid. This change involves legislative action which will be taken by the Minister for Finance at the next suitable opportunity. Payment of a grant will provide a direct financial benefit for the shipowner and in planning the purchase of a new vessel or the conversion of an existing one he will be able to take account of the grant and to access precisely the effect of the grant in reducing the operating costs of the vessel and in improving the return on his own investment. Up to this Irish shipowners, unlike their counterparts in other sectors of industry, have not had available to them any direct State assistance. This has been a severe handicap in such a capital-intensive industry.
It will be noted that grants will not be payable in respect of the acquisition of second-hand ships. The object of the scheme is to achieve modernisation of the fleet and this can be done only by the introduction of new ships incorporating the latest methods and equipment. The whole object would be defeated by the purchase of second-hand out-dated vessels. I should mention that with the technological developments now taking place in ship construction existing vessels are becoming obsolete more rapidly than heretofore.
The terms of the Bill are largely self-explanatory and call for little comment by way of explanation. The main provision is that a grant of up to 25 per cent of the capital expenditure involved may, under certain conditions, be paid in respect of the acquisition of a new ship or the conversion of an existing ship. Conversion might take the form of, for example, adaptation for carrying containers or change-over from dry cargo to tanker. Significant additions of a capital nature will also be eligible for a grant, for example, replacement of the main propelling machinery or main boilers. Capital expenditure on containers will also, subject to certain conditions, be eligible for grant payment, provided that the containers are related to the purchase or conversion of a ship in respect of which a grant has been approved. In accordance with Section 5 the scheme will be retrospective to 1st April, 1967. This retrospection is designed to offset to some degree the disadvantageous position of Irish shipowners vis-à-vis their British competitors who have benefited from a similar scheme since January, 1966. There is also provision for appropriate penalties for offences under the Bill. These provisions are normal in a Bill of this type. Section 12 (2) provides for the making of an Order to bring the Bill into operation. This provision is necessary because some time will be required following the enactment of this Bill to enable arrangements for the administration of the scheme of grants to be settled.
The cost of the scheme will depend on the response received from the shipowners and in the current year a sum of £2.464m. has been provided in the Vote for my Department. This sum provides for sums which will become due for payment under the retrospective provisions of the Bill. It is not possible to forecast the level of expenditure in future years but it is unlikely to be as high as that for the current year.
The Bill does not confine the payment of grant to cases where the vessel is built or the work is done in this country. Such a restriction would be impracticable because, by reason of the delivery dates required or inability to handle the work, it might not be possible for Irish shipyards to undertake a particular contract. However, I am most anxious that the scheme should benefit the shipbuilding industry here and before approval for the payment of a grant for a ship to be built abroad is given I will require to be satisfied that there are good and sufficient reasons why the work cannot be done here.
I am confident that the scheme will result in an increase in the total tonnage on the Irish Register, and will provide a valuable incentive to Irish shipowners to expand and modernise their fleets. Inquiriese made by them of my Department indicate that they are eager to avail of the opportunity which is now being presented to them. The scheme should also result in a more efficient shipping service, with lower unit costs, being available. This should prove particularly beneficial to our export trade on which our economy so heavily depends. Another valuable effect of the new scheme is that it should lead to additional work for the Irish shipbuilding industry. In fact, I can now tell you that the B and I Company ship, which will be eligible for the grant, is now nearing completion at the Verolme Dockyard and work has commenced in that yard for a bulk carrier for Irish Shipping Limited. I recommend the Bill to the House.
