The purpose of the Bill is to increase the limit imposed by the Nítrigin Éireann Teoranta Acts, 1963 to 1975, on the amount that NET may borrow under Ministerial guarantee. It is further proposed to widen the scope of the ministerial guarantee powers to permit the guaranteeing of the due payment of commission and incidental expenses arising in connection with loan guarantees. In addition, the opportunity is being taken in the Bill to introduce legislative controls over the remuneration of the chief officer of the company and over the superannuation schemes operating in the company.
In the Bill, the provision dealing with the raising of the limit on the guaranteeing by the Minister for Industry, Commerce and Energy of borrowing by the company from the present limit of £30 million to a new one of £100 million is by far the most important. This particular provision is necessary to permit the company to complete the financing of its ammonia/ urea project at Marino Point, Cork Harbour. In view of the substantial increase being proposed in the guarantee limit, I think it only right that the House should be aware of developments over the last two years which have made this increase necessary.
As the House is aware the Nítrigin Éireann Teoranta Act, 1975 was enacted specifically for the purpose of assisting the company to finance its Marina Point project. The Act increased the authorised share capital of NET from £7.5 million to a new limit of £27.5 million, it provided that the Minister for Finance could take shares in the company up to a limit of £22.5 million, and that he could take up additional shares in excess of that amount up to the new authorised share capital limit of £27.5 million with prior Government approval and it increased the limit on the guaranteeing by the Minister for Industry, Commerce and Energy of borrowings by the company from £2 million, to the present statutory limit of £30 million.
Based on a project cost of £63.5 million in mid-1975 it was considered that these provisions would be more than adequate to complete the financing of Marino Point. At that time it was intended that the project would be funded by way of £15 million Government equity, £5 million IDA grant and the balance of £43.5 million from borrowings. However, two significant developments since then, namely, substantial increases in the project cost and demands by the different lending institutions for 100 per cent guarantees for all borrowings, have upset seriously the company's best calculations and have brought about the present situation where further legislation is essential to enable the company to complete the financing of the project.
Firstly, I will deal with the question of the project cost. The latest estimate from NET suggests that total expenditure could be in the region of £90 million. This represents an increase of about £27 million on the mid-1975 estimate. The company has attributed almost 45 per cent of this increase to the continued upward escalation of material and labour costs, over 30 per cent to sterling devaluation and additional interest charges, and almost 25 per cent to additional project requirements which had not been budgeted for in the mid-1975 estimate.
It is, I consider, a matter of regret and of grave concern—and the Minister has made his views on this clear to representatives of the company— that costs have spiralled in this manner during the construction of the project. It must be conceded, however, that expenditure on the project has been incurred during a period when inflation reached heights never experienced before in these islands. It was, in fact, precisely because of these massive inflationary trends that NET were unable, despite their best efforts, to arrange a fixed price contract and were obliged to operate on a basis of reimbursable costs for the major proportion of the contract for the project.
The second development which has made it essential that the increased guarantee limit now sought be provided is the demand by all lenders that total borrowings by NET in respect of the Marino Point project be fully secured. This is something that the company did not foresee prior to the enactment of the 1975 amending legislation. At that time it had been anticipated that the institutional lenders, such as the European Investment Bank, who were participating in the funding of the project would require partial Ministerial guarantees for borrowings but that the other source of loan finance, a consortium of banks, would not require any such guarantees. However, it has since become clear following protracted negotiations between NET and the lenders that the institutional lenders must have full guarantees and that the bank consortium wishing to be treated on a par with all other lenders would require similar guarantees. In addition, due to the financing of earlier capital projects at NET's Arklow factory by way of short term borrowings over a number of years, an unfavourable imbalance between current assets and current liabilities had developed in the company's accounts; because of this it was considered prudent to rearrange these borrowings as medium-term borrowings through the bank consortium. The rescheduled borrowings which amount to almost £10 million will also require guarantees. Overall, therefore, total borrowings by the company in the region of £80 million, representing about £70 million required to complete the Marino Point financing and the £10 million adjustment of Arklow borrowings, will have to be guaranteed by the Minister for Industry, Commerce and Energy. In proposing a new statutory loan guarantee limit of £100 million, I considered it prudent that a realistic limit be provided to cover adequately the company's immediate requirements and possible requirements in the future.
I want to stress at this point that the attitude of the lenders in no way reflects any lack of confidence on their part in NET or in the Marino Point project. It simply illustrates the desire on the part of the different lenders involved in the overall financing package to be treated equally by NET and, since the institutional lenders must have full guarantees, it is not at all unreasonable for the bank consortium to seek the same facility. There is, however, no doubt that the company do retain the full confidence of their bankers with regard to their ability to repay all borrowings. Under the loan agreements entered into by the company all borrowings have to be repaid before the end of 1984. In fact, on the basis of their latest financial projections the company would have no difficulty in repaying these borrowings at an earlier date.
In addition to proposing a new statutory loan guarantee limit, I am taking the opportunity at this stage of extending slightly the scope of the powers of the Minister for Industry, Commerce and Energy with regard to guarantees. In section 3 it is proposed that the Minister be empowered to guarantee the due payment by NET of commission and incidental expenses arising in connection with moneys borrowed by the company. In practice the amounts of commission or other expenses that might be payable by the company would represent a very minute fraction of the actual amount being borrowed. Recent experience suggests, in fact, that such additional payments would, if payable, amount to not more than a ½ per cent of the total amount being borrowed. Nevertheless, the absence of the power to guarantee this type of payment did create difficulties for NET when completing a recent guarantee agreement and the amendment proposed in section 3 will get over this problem and bring the NET legislation into line in this respect with that of some other State companies.
The types of controls proposed in sections 4 and 5 in relation to the remuneration of the chief officer of the company and to superannuation schemes covering employees of the company are now being inserted in relevant statutes governing the different State companies as the opportunity arises. The power to control the chief officer's salary and to regulate superannuation schemes is already contained in the Memorandum and Articles of Association of the company; so in fact these new provisions will not affect the controls operating at present but will merely give them a statutory backing.
Now that I have dealt with the reasons which have made it necessary to introduce this Bill, I should like to refer to the Marino Point project itself. This vast petrochemical complex, which will be using as feedstock some of the Kinsale Head natural gas, will in broad terms have an output sufficient to meet the nitrogenous fertiliser requirements of Irish agriculture until at least the mid-eighties. This level of output will undoubtedly play a significant role in the continuing expansion of the agricultural industry and will, for the first time, ensure the availability of adequate nitrogen supplies to our farmers. In the early years of production and until the home market demand for nitrogen expands sufficiently to absorb the total output, surplus production will be disposed of on foreign markets through marketing arrangements already completed.
The actual construction of the Marino Point plans is now at an advanced stage. There have been some disruptions in the construction programme due to intermittent industrial disputes at the site but generally the rate of progress has been satisfactory. At this stage and due to the size and complexity of this undertaking it is difficult to say precisely when the plants will be ready to come on stream. It seems reasonable, however, to expect that the ammonia plant could be ready to commence production by about mid-summer 1978, followed by the urea plant within perhaps a further two months. This time scale should tie-in with the landing of the first natural gas supplies which it is expected will arrive at about that time.
NET's new plant will undoubtedly have a revitalising effect on our fertiliser industry as a whole and this is to be welcomed. There is little doubt that the industry has had more than its share of problems over the last couple of years and some of these are still with us. Last year, in particular, was an exceptionally difficult one for Irish firms in the business. Yet despite this situation companies have been able to maintain the same level of employment during the past year. The latest expectations are that the overall market situation will improve in 1978. The NET project will obviously help in this regard as the availability of home-produced nitrogen based on an indigenous raw material will from the middle of next year onwards be of benefit not alone to NET but also to the different companies involved in the production of NPK compound fertilisers in this country. Therefore, the NET project quite apart from generating an additional 500 jobs in the industry and in ancillary servicing industries will help also to secure the future of existing employment in the Irish fertiliser industry generally.
I confidently recommend the Bill for approval.
