Before dealing with the immediate subject matter of the Bill I would like to outline two important background areas which are essential for an understanding of the reasons for and intent of this legislation.
Firstly, the policy aspects. As Members of this House will know well, it is only in relatively recent times that we have begun to realise the potential of our country for the large-scale development of minerals. While there are historical reasons for our delayed entry to the minerals production field, the position is of course also related to new exploration techniques and new geological knowledge and interpretations.
Although there were, notably during the war years, some efforts by the State to become actively involved in mining development, the position when the present Government took office was that the role of the State was and had for decades been largely a passive one. Licences were given to private interests to explore for minerals and, when commercial discoveries were made, the development of the deposit was left to those interests, the State taking a small royalty where the minerals were in State ownership.
The position as regards ownership of minerals in this country is, by the way, not widely appreciated. Although it is not possible to be absolutely precise I can say that about 40 per cent of mineral rights are clearly in the ownership of the State and the State would probably be able to establish good title to a further 25 per cent; the remaining 35 per cent is privately owned. The practice under the Act of 1940 was that where it was established that workable deposits of minerals were in State ownership a lease was granted to the developer. Where ownership of the minerals was in private hands, that is, not either owned by the State or by the proposed developer, the mineral rights were acquired by a compulsory acquisition order and those right were then leased by the State to the developer. Compensation to the owner was either settled by agreement or by a mining board set up under the Act.
Over the past few years many Governments in minerals-producing countries have become increasingly dissatisfied with the situation where the State had little or no say in the development of the mineral resources of the country. Accordingly, again as a worldwide phenomenon, the principle of State involvement, either on its own or in partnership with private interests, in the development of minerals became increasingly common. There are a number of strong arguments in favour of State participation. Firstly, if the State is to depend solely on royalties based on output as a means of getting a fair return from the minerals, that policy is not going to be satisfactory either for the State or for the developer. Participation by the State, combined with a reasonable level of royalty and fair and comprehensive taxation arrangements, provides a flexible system which ensures an adequate share of the "take" for the State and at the same time enables the developer to assess its impact on the economics of the operation.
Participation provides the State with a valuable insight into and understanding of the business of minerals exploration and development. This is most important because the State cannot properly exercise its general role of control and supervision, nor can it optimise the desirable degree of national involvement, unless it understands the industry.
Now, the background to the Navan orebody. To appreciate the position which I found when I became Minister it is necessary to go back to the earlier events which followed the original discovery of the orebody at Navan. The mineral ownership of the orebody was broadly typical of the general position which I have outlined. The major part of it was State-owned but a very substantial proportion lay under lands owned by the late Mr. Wright who also owned the mineral rights. The Tara interests were unable to reach agreement with Mr. Wright on mutually acceptable terms for the acquisition of his mineral rights and the then Government set in motion the procedure of compulsory acquisition. However, the people involved in Bula Holdings and Mr. Wright entered into an arrangement as a result of which the land and mineral rights were acquired by Bula Limited in which the shares were held by Bula Holdings and Mr. Wright. The Government order which sought to acquire these rights for the State as a preliminary to granting mining rights to Tara was contested in the courts and in March, 1974, the Supreme Court confirmed an earlier judgment of the High Court that the order made by my predecessor was invalid. Earlier in 1971 an undertaking had been granted by the previous Government to grant a lease to Tara in respect of State-owned minerals. No terms or conditions were agreed but the undertaking was, of course, legally binding on me.
The findings of the Supreme Court were considered in my Department in consultation with the Attorney General and in the light of separate legal opinion, and the possible courses of action open to me were examined. There were three possibilities. I could have attempted to make a second order which would inevitably be challenged in further court proceedings. It has been suggested that this course should have been attempted, regardless of the likely consequences. In the light of the court proceedings and the legal opinions which had been obtained the arguments against making a second order were considered to be overwhelming. Even had it been considered appropriate for the Government again to seek to take by compulsion from the Bula people rights which the highest court in the land had confirmed were properly theirs, there was no certainty that the State would succeed in the second attempt. Even if a second order were made and even if it were to survive what would inevitably be protraced court proceedings, there would be the question of compensation. There was every likelihood that in such circumstances the compensation payable would be fixed by reference to the full commercial value of the minerals and such a compensation liability would obviously diminish the interest of the developers on whose behalf the order would have been made by the State. In addition, of course, further legal proceedings would have meant even greater delays in the development of the orebody.
The second possibility which I considered was simply to do nothing about the Bula section of the orebody. This would have left Tara with the mineral rights which the State would lease to them and would leave Bula free to make whatever arrangements were possible or desirable from their point of view. I do not think anybody was, or is, in any doubt about the attitude of the two companies—and of course the people involved—to each other. There was the strong background of mutual ill-feeling which ruled out cooperation between the two. The river Blackwater lies between the two properties and diversion of the river was considered to be necessary both on grounds of safety and so as to avoid having to leave a huge slice of orebody undeveloped in the form of a safety pillar sloping outwards on each side of the river bank. It was therefore essential that an effort be made to ensure that the development of this highly valuable national asset —the largest orebody of its kind in Europe—would not either be deferred unduly or else be advanced in a way that sowed the seeds of future disaster.
Furthermore, the Bula people had at all times made it clear that their objective was to establish a native mining operation run and controlled by Irish people. Now at this time exploration and development of Irish minerals was, and still remains, almost exclusively in the hands of external companies and, indeed, one multinational group has established a totally dominant position on the Irish scene. I have always said that we need the multinationals. We need their experience, their technology and their financial capabilities. But we need them as partners and not as masters. This second alternative was therefore contrary to the public interest and thus unacceptable to me on a number of grounds.
I decided on a course which would avoid the unacceptable approaches and the serious inherent risks involved in either making a new order or standing aside from the situation. The course I decided upon would ensure that the State would have an accepable stake in, and revenue from, the development of the entire orebody, both State and private sections. It would enable the State to influence the orderly development of the orebody as a whole, in the national interest, and also to influence the Blackwater diversion issue which was such a potentially divisive matter between the two companies. It would enable the State to exercise a measure of control over the rate of depletion of the orebody. It would ensure that supplies of concentrates would be guaranteed for an Irish smelter when established.
The central requirement in the case of each company was a 25 per cent free equity stake for the State to be provided for in the case of Tara through a lease arrangement and in Bula's case in an agreement—the other important rights of the State to which I have referred, also being covered. The key to this entire critical package was 25 per cent free stake in the Bula portion of the orebody. Since the State had no rights in respect of the Bula private minerals, this had to be negotiated. From this resulted the agreement to acquire, in addition to the 25 per cent free interest, an additional 24 per cent interest to be purchased by the State at a price to be fixed by an independent board of valuers. I believe that in a mixed economy such as ours it is proper that participation by the State should be on a partnership basis and the proposed acquisition of 49 per cent share in Bula marked a significant evolution in the State's resources policy.
The agreement with Bula was therefore the key which I needed to secure participation in the Tara portion of the orebody. It has been suggested that I was free to impose any conditions I wished in the Tara lease. That is not so. An undertaking to grant a lease had been given to Tara by the previous Government and while I was negotiating the terms of that lease with Tara legal proceedings were instituted by the company. These proceedings sought to establish that I was not entitled to attach terms which were not of a kind which had hitherto applied to State mining leases. Participation by the State was obviously not one of these previous terms. Following protracted and difficult negotiations the company ultimately agreed to afford me a 25 per cent free equity interest in Tara Mines Limited and in due course the court proceedings were withdrawn.
Having explained the underlying policy and the background to this case in some detail I should now like to say two things. I have always said that these arrangements are not ideal. Of course they are not. The ideal arrangement would be that the total orebody would be developed as a single undertaking by an organisation which would be predominantly Irish, in which the State would have a significant role, and where all the profits from the development would remain in Ireland. But how can one talk about an ideal solution when what I was left with was a tangled mess with two proposed developers who were on the worst possible terms with each other and where no one could see when and how this valuable national asset would be brought to development.
The second point I want to make is that the Bula agreement cannot be considered as an isolated matter. It is, as I have said, part of a larger package which gives the State a free 25 per cent stake in the whole orebody and as a result of which a share of the total profits from the orebody, approaching 70 per cent overall, will accrue to the State. When the initial development costs of the operations have been paid off, the State take will be about £25 million to £30 million each year in present money terms. There are also the important provisions about cooperation between the two mining companies, including the river diversion issue, the measure of control over the rate of depletion of the resource and the assurance of supplies of concentrates for an Irish smelter. And there is a further point which must be taken into account. Another objective which I set myself was to get a new initiative under way in exploration for oil and gas in our Continental Shelf. In order to provide for an acceptable level of revenue for the State and to secure for the State a position from which it could influence developments, a significant level of State participation in petroleum development was absolutely essential. I considered it vital therefore that when we came to negotiate with the international oil companies the principle of State participation in the development of our natural resources should have been definitively established. In fact, in the negotiations with the oil companies I was able to secure provision for participation by the State up to 50 per cent on extremely attractive terms.
I should now like to deal specifically with the proposed participation in Bula. I might first give the Seanad some idea about the Bula minerals. Although the Bula portion of the orebody is considerably smaller than the portion leased to Tara, it is, never-theless, large by any standards. In 1974 there were only two lead and zinc mines in Europe bigger than Bula and in the whole world there were only 17 bigger lead and zinc mines, and that is ranking in a world list of over 100 mines. Of the total new lead and zinc projects being considered worldwide in 1975 Bula was No. 4. Estimated ore reserves of Bula are not less than 15m tonnes with an average ore grading of the order of 10 per cent. The annual crude ore mining rate will be about 1m tonnes per annum. Construction employment is expected to be around 400, production employment about 250 and an estimated annual pay roll of £1.3 million.
The shares of Bula Limited—the mining company—have been held by Bula Holdings, an unlimited company, 80 per cent, and the estate of the late Mr. Wright, 20 per cent. The agreement to acquire a 25 per cent free interest in Bula Limited and a further 24 per cent on a paid basis was concluded with Bula Holdings and Mr. Wright. The four individuals now named in the Bill are also parties to the agreement. They are described in the agreement as "convenantors" and, as the people who controlled Bula Holdings, they subscribed to the agreement to guarantee the performance of the obligations of the company.
The price to be paid for the 24 per cent paid interest has been fixed by an independent board of valuers. The board which fixed the consideration was appointed by the Institute of Arbitrators in London. When, in a moment. I come to discuss the valuation issue, I think it will be clear that in view of the extreme difficulty of reaching agreement on a valuation figure the only alternative open to the parties was to provide for valuation by an independent body. Fifty per cent of the consideration for the share purchase is payable from a current date and the balance by two further equal instalments over the next two years. The payments are to be made to Bula Holdings and the estate of Mr. Wright.
It has been suggested that payment of the purchase money for the 24 per cent interest should be made into the mining company, Bula Limited, and be used as development finance for the project. This might appear to be the ideal situation if one were in a position to achieve it. The object of the arbitration proceedings was to establish the value of the thing which each shareholder was parting with and in respect of which he would have to be compensated. The minerals were privately owned by the shareholders and their right to them had been established by the highest court of the land. They were free to dispose of them in whatever way they wished and clearly if they were going to part with them they would expect to receive the value of them. There is no point in talking about arrangements under which the funds might have been invested in the company. If one were to think of a scheme of that kind it could only be on the basis that the net result was to compensate the shareholders for the dilution of their interest in the enterprise in much the same way as the arbitrators had done.
There has been a very great deal of argument and speculation about the valuation figure since the amount of the arbitrators' valuation was announced. As I have said, the board was appointed by the Institute of Arbitrators in London. The chairman of the board was a lawyer who had considerable experience in arbitration proceedings and who also had experience of dealing with planning matters—and this was, of course, relevant to the Bula case. The other members of the board were a chartered accountant and an engineer, each of whom also had experience in arbitration proceedings. The board invited the two parties to make submissions to it on the valuation which each side considered appropriate and as well as that a number or oral hearings were held. Furthermore, the board had authority to commission their own experts and, in fact, they did so. Taking account of the various valuations which were submitted by both sides and also including other valuations which had emerged at an earlier stage and, indeed, since the board's finding were announced, one can say that the range of figures suggested was from low single figure millions to more than £100 million. This, as I have suggested, is evidence of how exceptionally difficult it would have been for the two parties to negotiate a mutually acceptable valuation.
I think it is fair to say that the very lowest and the very highest valuations may be disregarded since they are, in essence, simply a demonstration of extreme positions and demonstrate the sort of figures which can be produced when the views of either side are pushed to extremes. But disregarding the extreme figures, there still remains a very wide range within which an acceptable valuation could fall. The task of putting a valuation on an undeveloped orebody is obviously extremely complex and difficult. One has to exercise one's judgment about how a wide range of variables will turn out. These variables include the mining plan which will be adopted, the development and operating costs, future metal prices and the relative movement of exchange rates and inflation. Lead and zinc are basically dollar commodities but the operating costs will be incurred largely in sterling.
Even when assumptions have been made about all these it will be necessary to decide how these future cash flows should be discounted so as to arrive at their present value. This, of course, assumes that the preferred approach is to use the DCF technique. It is well known that this technique is used for the purpose of evaluating investment opportunities but the final board room decisions on particular investment projects are not necessarily based solely on the results of DCF calculations. For DCF purposes a discount figure has to be selected which will reflect the time value of money and, as well, the risk factor involved. The provision to be made for risk could vary very widely. It will obviously be affected by the element of risk which has been built into the selection of the variables to which I have referred earlier and furthermore a purchaser's view of the risk factor will almost certainly differ —and possibly differ widely—from the view which would be taken by the owner of the asset.
Each of the two parties to the valuation proceedings commissioned experts to prepare valuations on their behalf. These experts were people of the highest standing with a particular competence in this field but their valuations widely differed. There is no reason why this difference should be seen as reflecting in any way on their competence or integrity, because essentially they were acting in different interests and there could quite legitimately be a very substantial divergence of view as between the two interest involved.
Before I conclude on this question I would like to refer to a particular matter to which I think sufficient weight is not being given in this context. On a conservative estimate the metal content of the Bula orebody is in excess of 1 million tonnes. Taking current lead and zinc prices the value in situ of the metal is of the order of £700 million. Now it can be argued that this figure is not particularly relevant. No one, of course, is suggesting that it should be taken as a commercial valuation but it is the basic figure to which all valuations must ultimately be related. When one takes chunks off it in respect of development and production costs, smelter charges, taxation and so on, one is still left with a very large figure for the total net revenue which must be valued in present-day terms.
Even omitting inflation from the calculations there still remain two significant variables. The revenues from the orebodies, as I have said, are essentially dollar revenues and therefore the size of these future revenues will be affected by the relationship between the dollar and sterling over the years ahead after allowance is made for differences attributable to the relative inflation rates here and in the US. But whatever assumptions one may make about this aspect there is the other crucial question as to what will happen to metal prices, in real terms, over the next couple of decades. I am referring to changes in metal prices which are not in line with changes in price levels generally. Therefore it will be obvious that if metal prices were to increase even marginally faster than other price and cost increases then this factor would very substantially increase the future revenues from the orebody and therefore its present value.
The price relativity as between metals, as well as other commodities, will certainly change significantly over the next couple of decades. Geologists have done calculations to ascertain the different sorts of metals in the earth's crust. From these calculations and making certain other assumptions, including the rate of increase of industrialisation, it becomes possible to make projections as to what resources will run out first. Estimates have been made by all sorts of agencies including agencies of the great powers, by groups concerned with conservation, by economists and businessmen. There can then be a chart drawn up which gives what is called the dynamic resource life for different metals. It is an index and it is dynamic in the sense that it has to make assumptions based on how frequently the metals occur in the earth's crust, what sort of orebodies you will get and various other relevant assumptions.
Take, for instance, cobalt. These predictions indicate that the dynamic resource life of cobalt is 685 years. Taking iron, the figure is over 600 years; taking aluminium, the dynamic resource life is over 200 years. But the least time of all in the dynamic resource index for metals is for zinc and that is just 40 years. Now it is not an unreasonable assumption that a metal with the shortest dynamic resource life of all should increase in price somewhat faster than the average. There are, of course, other factors which must be taken into account and general exercises of this kind must be viewed with some caution. Nevertheless, this position which I have outlined clearly demonstrates that the most qualified and competent experts would be justified in taking widely different views about future trends in zinc prices.
I think it is fair to say that in connection with the proposed Bill the matter which has been the subject of the greatest criticism so far is that the agreement of 12th December, 1975, which is referred to in the Bill, has not been published, or presented to the Houses of the Oireachtas, which would have the same effect. I feel I should explain my position in this regard very fully to the Seanad and I believe that, if my views on this matter are considered dispassionately, it will be agreed that I have acted properly and, in fact, that publication was not an acceptable course.
Bula Limited is a private company and, as such, is entitled, within the constraints of present law, to have its affairs treated on a confidential basis. The acquisition by the State of a 49 per cent interest in the company will not change that status; it will still remain a private company. I have already said that I see participation by the State as a partnership, a partnership between the public sector and private interests. If this were a partnership between two private interests there would be no suggestion from any source that the agreement be published and I am sure that everyone would uphold the right of the parties concerned to full confidentiality in the matter. If the introduction of the State as a minority participant is to be a reason for changing the norms of ordinary business then this puts the State—and the company at a serious disadvantage. This would be a most undesirable development from the State's point of view both in regard to future State participation in the development of our natural resources and in relation to the State's industrial development promotion efforts generally. Minority participation by the State should be treated as a commercial transaction and both the State and its partner must be entitled to the rules of confidentiality which unquestionably apply to commercial agreements of this kind.
It is clear that in the context of the changed policy on natural resources there are no grounds for considering the Bula case as an isolated incident. It would not be in the public interest to do so. During last year I concluded offshore licensing agreements with 11 consortia which included almost every major oil company in the world and a large number of other prominent petroleum interests. These agreements provide for participation by the State and they set out the provisions and conditions which will apply to such participation. It is the widely accepted practice that Governments do not publish these agreements. In fact, when I was preparing for the negotiations with the oil companies I found it extremely difficult to get information about the precise contents of such agreements, even though we had friendly and helpful contacts with certain other Governments which had already concluded detailed agreements with oil companies. In view of the potential which our Continental Shelf has it is of vital importance that the principle of confidentiality for commercial agreements between the State and the private sector should not be compromised.
Again, we have the position where the Industrial Development Authority and other State agencies spend public funds on the acquisition of shares in private companies. The agreements relating to the acquisition of these shares are properly regarded by the agencies concerned as confidential and the legislation governing such transactions does not require that the agreements be published. Here again it would prejudice our industrial promotion efforts if we now demonstrated that the private interests concerned could not rely upon the State to maintain confidentiality as regards the arrangements which they have entered into, or contemplate entering into, with the State.
There is therefore nothing exceptional about a situation where public funds are being made available to give effect to an agreement, the contents of which remain confidential. Indeed, even apart from the question of industrial promotion and natural resources, the position is that public funds vastly in excess of the amount now under consideration are made available to various Ministers or State agencies to be expended under contracts and agreements of various kinds, none of which is published or presented to the Oireachtas.
While therefore I could not agree to publish the terms of the agreement with Bula Limited, I recognise the position may not be satisfactory from the point of view of public representatives. It is patently no solution to the problem to prejudice the Government's position by publishing all such agreements and, as I have said, it is impossible to adduce acceptable reasons for making exceptions. It should not be beyond the capability of the Houses of the Oireachtas to devise a system whereby certain categories of agreements entered into by Ministers or State agencies could be scrutinised in some way which could not result in their publication and I suggest that if there is dissatisfaction with the position in relation to this matter a solution must be found, not by making a potentially damaging exception but by devising a system to deal satisfactorily with particular categories of agreements.
The Bill when enacted will not in any way make the agreement referred to in section 1 law. It is not correct to suggest the Bill proposes to make the agreement the law of the land or that the Bill ratifies the agreement.
It is, as I have said, by no means unusual for Ministers to enter into contractual arrangements with outside parties. When they do so, the legal rights and obligations of the parties arise from the agreements and not from any statutory source. Exactly the same situation will exist in relation to the agreement referred to in the section we are now considering. This Bill when enacted will confer authorisation to carry out the terms of the agreement, but it gives no statutory force to them. Any legal rights and obligations of the parties will continue to arise from the agreement and not from the statute.
I think it will be clear at this stage that my task of securing the approval of the Houses of the Oireachtas for this measure would have been easier had I decided that publication of the agreement was possible. It is, as I have said, a freely negotiated agreement and therefore has provisions which are designed to protect the legitimate interests of both parties. But I am quite satisfied that it is a satisfactory agreement from the point of view of the State; it protects the fundamental interests of the State in a reasonable manner and so far as special rights are concerned, the balance is substantially in favour of the State.
I would like to make one further point on this publication issue. I deliberately chose the open method of introducing a special Bill to enable me to carry through this transaction. By this means I have afforded the Houses of the Oireachtas every opportunity— which to date I may say has been fully availed of—to discuss the proposed participation and its implications. By contrast, it was possible to conclude arrangements under the existing legislation to grant the right to work the State minerals at Navan, which are several times larger and more valuable than the private minerals now under discussion, and there was no formal parliamentary debate.
The Bill which is now before the House is an enabling measure. It authorises me to expend the sum of money specified for the purpose stated. The completion of the contract—that is, the final procedures applicable to the sale and purchase—are matters to be dealt with by qualified experts. The agreement has been properly and carefully drawn up and there is a very considerable number of matters which must be examined and verified in connection with the completion procedures. This is a business for specialists, for people who are qualified and experienced in legal, commercial, financial and accounting practices. It is not possible to have these completion procedures dealt with on the floor of this House or any other public forum nor is it proper that it should be attempted.
Finally, I would like to reiterate that, due to the situation I inherited and the legal difficulties surrounding the orebody, I am convinced that the course I have chosen was the best available option open to me. We have been, to a significant extent, moving into new policy areas in the field of natural resources. Given my objective of obtaining for the people the maximum benefit from the development of the orebody at Navan, I believe that this Bill is a necessary and constructive step. I commend it to the House.
