Seanad Éireann debate -
Wednesday, 7 Jul 1982

Vol. 98 No. 8

Irish Steel Holdings Limited (Amendment) Bill, 1982: Second Stage.

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

Minister for Industry and Energy (Mr. A. Reynolds)

This is my first visit to this Seanad and I look forward to the discussions that will take place here. I hope to be as accommodating and as forthcoming as possible with all Senators.

The main purposes of the Bill are to increase the authorised share capital of Irish Steel Limited from £25 million to £50 million; to provide, as a consequence, a similar increase in the value of shares which the Minister for Finance may take up; and to provide for an increase in the limit on the Ministerial guarantee of company borrowings from £60 million to £75 million.

Irish Steel Limited are a wholly State-owned company, whose principal activity is the manufacture of steel from scrap. The steel products made are mainly used in the construction industry. The company's only other activity is the manufacture of galvanised sheet of the type used for farm buildings.

I consider it appropriate at this point to give some background to the present state of the company, which creates the need for this Bill to restructure Irish Steel's finances.

Up to Ireland's Accession to the EEC, Irish Steel operated with marginal profits, behind a protective tariff wall. Their production capacity at that stage was small, only about 150,000 tonnes and was aimed at supplying the needs of the Irish market only. Exports took place from time to time but the quantity exported was very small and was directed almost entirely at the UK market.

By the mid-seventies, it had become clear that the company could no longer maintain their traditional operation. The dismantling of the protective tariffs meant that European producers, some of whom are amongst the world's most efficient, now had free access to the Irish market. In these circumstances, Irish Steel's plant was not modern or efficient enough to compete. The company commissioned a Canadian engineering firm to draw up a plan for the physical restructuring of the plant. Work on implementing this plan began in 1978.

The old plant was almost totally replaced, and production capacity was increased from 150,000 tonnes of crude steel to 345,000 tonnes, equivalent to about 300,000 tonnes of finished product. The new plant consists of an electric furnace, melting 114 tonnes of scrap to produce 90 tonnes of steel every two to three hours, a continuous casting machine, and a specially designed rolling mill which can produce bars which are round, angular or flanged in cross-section in dimensions from 12mm thickness to 120mm, and up to 70 metres long.

The project is now complete in all essentials, and its final cost is estimated to be £80 million. This is accounted for as £64 million for fixed assets and capitalised interest, and £16 million for additional working capital.

The actual cost of fixed assets and pre-production expenses, at £64 million, is more than double the original estimate, which the Government approved in February, 1977. The resulting level of debt is an additional handicap on the company in their efforts to attain viability.

The reasons for the cost increases are many, the principal ones being the fact that the orginal estimate was based on a general design concept rather than of firm tenders; and the need, after work began, to modify extensively the design in the light of experience.

The level of cost increase is a serious cause for concern, but the fact remains that the extra costs have already been incurred and the problem now is to deal with their consequences.

The cost of the project is itself only one of the costs incurred by Irish Steel, although it is the major one. In addition, the company have suffered losses since 1974 due, firstly, to the obsolescence of the old plant, secondly, because it was necessary to suspend production for 18 months during the installation of the new equipment and, finally, since July 1981 losses have occurred while running in the new plant and attempting to break into export markets. Accumulated losses at 30 June 1982 are about £49 million, of which £22.8 million was incurred in the past year.

The combined effects of the project cost and losses can be seen from the financial state of the company. At 30 June 1982, the unaudited balance sheet of the company shows assets of about £69 million, financed by share capital of £25 million; grant capital of £29 million; loans of £64 million; less accumulated losses of £49 million.

Irish Steel will need a further £11 million in loans to enable them to operate up to the end of the year. Their ability to obtain this finance is heavily dependent on the enactment of legislation to enable the Minister for Industry and Energy to guarantee further loans. As the existing guaranteeing limit of £60 million has been reached, the limit must be raised.

Increasing the amount of borrowing which may be guaranteed will not of itself solve the company's problems. The burden of debt is too large to allow the company to make profits, and fundamental financial restructuring is clearly necessary. The full extent and form of restructuring required is not yet clear due to a number of factors, market prospects being the major one.

The world steel markets are very depressed at present, and Europe is in a particularly bad situation. It is estimated that the over-capacity for steel production in Europe is now 30 million tonnes per year. This situation arose partly because the steel industry has never recovered from the oil crisis of 1974-75 — and indeed the latter one in 1979 — and partly because of increasing competition from countries such as Japan, Korea and Brazil, who have newer, more modern steel plants, and often have cheaper labour and energy.

It may seem strange that Irish Steel increased their production capacity at a time when great overcapacity already existed. This apparent anomaly arose because the type of plant chosen by the company, while it is the most modern available, cannot operate viably below the size chosen by Irish Steel. This minimum size was over twice the size of the company's old plant.

At this point I would like to comment on the level of competition from countries outside the EEC. These imports are causing great problems in Europe, particularly this year. Indeed, Irish Steel themselves suffered from the importation into Ireland of 11,000 tonnes of reinforcing bars from Argentina in the early part of this year. The reason for the present glut of third country imports is that the world steel market is so depressed that producers try to achieve sales at almost any price, while the European producers, in an attempt to ensure their survival, raised their prices on 1 January 1982, thus giving the third country producers greater scope for exporting to the EEC.

The EEC's trade relationships are complex and delicate. It is not possible to prevent imports without jeopardising exports, and since the EEC is a net exporter of about 13 million tonnes a year, it is obviously necessary to be careful in this area. The same reasoning applies in Ireland's case, as Irish Steel will need to export some 70 per cent of the 250,000 tonnes they will produce when running at full capacity.

The only way to counteract imports, therefore, is within the framework of existing agreements. These allow anti-dumping duties, countervailing duties and other measures, provided evidence exists that the imports are competing unfairly with European steel. It is also possible when renegotiating agreements with the EEC's main trading partners to restrict the quantity of imports. In the case of the Argentinian imports I have mentioned, an anti-dumping complaint is being investigated by the Commission, while on the broader question, the Minister for Industry and Energy will be pressing to make the EEC's trade agreements for steel more restrictive when they come to be reviewed.

In addition to the problem of competing imports, European producers also have problems caused by internal competition. In an effort to streamline the industry, control destructive competition, and improve Europe's competitive position, the European Commission prepared a plan in the late seventies called the "Davignon Plan". The main measures currently in operation under this plan are restrictions on investment in steel; restrictions on State aid to steel; restrictions on steel production; measures to raise prices and control competition; aids for redundancy, short-time working and early retirement; loans to help industries which employ redundant steel workers; and loans to help steel undertakings to increase their efficiency and reduce their production capacity.

Our concern in discussions on these measures has been to ensure that Irish Steel's prospects of viability are not damaged, particularly by restrictions on State aid and restrictions on production. As the company's development plan was approved by the Commission, it would now clearly be unfair if Commission measures rendered it unprofitable. I am now happen that the likelihood of this is remote.

While steel is not our most important industry, representing less than 0.2 per cent of Community production, it is of vital importance for most other members of the EEC. For this reason, it is essential that all countries strictly adhere to the Commission rules. Otherwise market chaos would ensue, with the effect of causing severe distress throughout the Community. One important consequence of this for Ireland is that the State aids code must be observed. This lays down that all intended aids for steel must be notified to the Commission by 30 September 1982, for prior approval and that aids cannot be paid after 31 December 1985.

This means that the Government must decide by 30 September on the funding requirements of the company for the foreseeable future, as no further aids will be allowed. A firm of consultants, jointly appointed by me and by the Commission, are currently studying this question, and they will report by the beginning of September.

It will be clear to the Seanad from what I have already said that the prospects for Irish Steel are difficult in the extreme. The company must achieve levels of exports far above any previous achievement, at a time when the European and world markets are at their most depressed level for many years, and at a time when established producers are being forced to reduce their production capacity as demand will not match supply for some years to come.

It gives me no pleasure to paint such a gloomy picture, but I consider it my responsibility not to mislead this House with a falsely encouraging picture. There are encouraging aspects in this situation, however, which I will turn to now.

Irish Steel now have one of the most modern plants of its size in the world. They have a great advantage over their competitors in being able to produce well over 100 products, although for technical reasons it is envisaged that no more than 84 will be produced. The result of this is that it is the only plant of its size which can offer merchants such a complete range of products, while its flexible design enables it to change its production to suit market trends. In general, it is fair to say that a small, efficient and flexible producer has a special advantage in the market, however depressed it may be. This is borne out by the fact that the only type of plant now making profits in Europe is the so-called "mini-mill", which is the type of plant used by Irish Steel. Taking all these factors into account, Irish Steel's prospects, in spite of the difficulties which can be expected, should be reasonably good with a proper approach to sales management and cost control.

An example of the difficulties which can arise is now taking place. Due to poor sales in their first year of operating the new plant, when sales were 41,500 tonnes against a projected 110,000 tonnes, it has proved necessary to introduce a three-day working week from 5 July. This measure affects about 500 of the 637 workers at the factory, and it is to be hoped that the situation will soon improve enough to allow a resumption of normal working.

On the question of management, the company have been keenly aware of the need for staff of the highest calibre. Since the beginning of the project, a total of 20 new management personnel have been recruited, including a new sales manager with considerable international experience, and a new chief executive.

Irish Steel are under no misapprehension of the difficulties facing them. They are facing a very severe test in the market place, while at the same time coping with severe financial problems due to their high burden of debt. The company will need constantly to increase their borrowings unless a major financial restructuring is carried out. Financial restructuring in this case inevitably involves State aid and, as I have already stated, no aid can be paid without the prior approval of the Commission, and the Commission will not approve such aid unless the basic viability of the company is established.

The only other provision in this Bill is a minor amendment to provide that the company should comply with directives about remuneration and conditions of employment issued from time to time by the Minister for Industry and Energy, with the consent of the Minister for the Public Service.

To conclude, I would hope that, in spite of the many difficulties now facing Irish Steel, the future of the company can be assured.

I am confident that the Bill will commend itself to the Seanad and I recommend the Bill for its approval.

Mr. Durkan

I would like to welcome the Minister to the House. I hope our discussions will be fruitful and beneficial. I would like to welcome the Bill. It would be all too easy, having regard to the serious losses which Irish Steel have suffered over the past number of years, to write this off and say this was another area in which we were not prepared to continue incurring losses. It would be easy to bury our heads in the sand and forget about the 700 workers employed there and say that we were going to cut our losses. I compliment the Minister for having the courage to go into the market place again and decide that the ideal thing was to restructure the firm, allow it to expand, allow it to diversify and also to encourage it to become in every way more competitive.

The first thing which comes to mind — it is a worrying aspect — is that according to a recent release by the Confederation of Irish Industry there has been a drop of 27 per cent in the volume of metal articles produced between February 1980 and February 1982. This, as the Minister has already indicated, is in fact making it quite clear to everybody the great difficulties facing Irish Steel.

The proposal originally was to modify the plant in order to make it more productive and more competitive on the world market. It must be obvious to everybody now the absolute necessity, where possible, to recycle any steel or metal products that are available. We must all be aware of the increasing numbers of such articles which are only too blatantly obvious to everyone. It can have a twofold benefit: it can be beneficial to our environment and it can be equally beneficial from the point of view of our balance of payments in that recycling of metal products which are available in the way of scrap inside the country at present can ensure that we will not need to import as much as we have been doing heretofore.

In relation to importation, I am deeply worried at the impact which the importation of such large consignments of steel from Argentina could have on Irish Steel even in their restructured form. I know that there are certain limitations and restrictions within which the Government must work in relation to EEC membership. At the same time, it must now be made quite clear to our EEC partners that importations of this nature from third countries can have a detrimental impact on Irish industry, having particular regard to the fact that our industrial economy is not the sophisticated economy of some of our European competitors.

Our industry is in its infancy in comparison with our partners in the EEC. We have only to think back to when the industrial revolution came to Europe and to Britain and compare that with when the industrial revolution came to this country in the sixties and the vast expense involved in setting up industries in the sixties, seventies and the eighties as compared with the setting up of industries at the turn of the century. We are much more vulnerable to the winds of change that are blowing through our EEC partners. I ask the Minister to pay special attention to the imports from third countries and the very serious impact they would have on Irish Steel in particular and the jobs involved in Irish Steel.

The facts speak for themselves. The output of Irish Steel will now be altered from 150,000 tonnes per annum to converting 114 tonnes of scrap to 90 tonnes of steel in less than three hours. That is the type of modification which should probably have taken place several years ago and probably would have taken place many years ago had it not been for the protection to which they had become accustomed. On the one hand, free trade is probably detrimental in one aspect but beneficial in another in that it will make certain aspects of our industry, and in this case Irish Steel in particular, more competitive.

The Minister has spelt this out and I welcome it. Irish Steel must be under no illusions as to the task that now faces them. The fact that this Bill is brought before the House and that certain financial arrangements are made whereby it will be easier for them to continue in business does not necessarily mean that a Government are prepared indefinitely to underwrite losses if Irish Steel continue on the same basis as they have been over the past couple of years. It would be very wrong if we were to indicate that we would continue to underwrite such losses, because with losses in a year of approximately £10 million-odd it would be entirely unrealistic to expect any Government to continue underwriting such losses.

I have mentioned the drop in the volume of output of metal articles. There were many reasons for that. Firstly, there is the general recession both here and abroad and, secondly, within our own economy we have had a recession in the agricultural sector — the Minister referred to corrugated iron and so on — which would have a bearing on the drop generally as there was not the same demand for the last couple of years from the agricultural sector for corrugated steel as there was, say, in the previous ten years. I believe, with an upswing in the agricultural side of the economy in the next six or eight months perhaps the demand in that area will increase again. That should have hopeful prospects for Irish Steel.

Generally, as I already said, the Bill is to be welcomed. It is progressive. It is necessary in these times of recession, gloom, doom and so on that at least one firm are prepared to rationalise, to look at themselves carefully and analyse themselves, decide where they were going wrong, decide how best they can compete in the future and decide how they can best serve the economy in which they are housed. If all other industries could take an example from what Irish Steel propose to do we would probably be in a far better position in two or three years time.

At the same time, we must keep a careful watch on how the firm progress for the next couple of years and particularly for the next year because trends will be very quickly established and we will know in a very short time if it has been found possible to compete with our EEC partners when, as the Minister said, there is already very serious overproduction of the steel, and at the same time compete with imports from third countries. If we can compete in those two areas this Bill will be well worth while and rewarding both from the point of view of Irish Steel and the economy generally.

Mr. Cregan

I would also like to welcome the Minister to the House and as a Cork Senator I am quite proud of the amount of money that has been put into Irish Steel over the years. We can be proud of the plant we have in Cork harbour. I guarantee Senators that the staff, management, workers and everybody involved in Irish Steel are indeed very conscious of their commitment. At the same time, we must always ask, why we should not be doing better.

A rather frightening thing happened earlier this year because of Argentine steel coming into this country. There was concern about the Irish Steel firm. Is it possible, in relation to the deal we have with our EEC partners as regards steel imports, that a better deal can be negotiated? The Minister mentioned it but I think he is not completely right in saying that he can indeed get a better deal. I hope a better deal can be negotiated because I cannot see how we can say that we are able to compete when the Minister is saying that we uppped our prices by 2 per cent on 1 January to ensure our survival, thus giving third country producers greater scope for exporting to the EEC.

That does not add up because I cannot understand why, as a partner in the EEC, we should be upping prices and at the same time be saying that we have a glut of steel. Why can we not fight this type of thing by creating a situation where we should be decreasing the price instead of upping the price? It is only right and proper to say if we are producing we should be doing what third countries are doing, trying to sell at any price. I fail to understand why we should be producing, upping the price to protect our survival and at the same time these third countries come with steel into the EEC countries.

I do not think we are really fighting that. More work must go into this type of thing. We must decide whether we should be saying we must be selling the steel and we should be pushing the market where we can, at any price. If it is costing us money to keep the workers working — naturally we want everybody working — we should be finding some markets somewhere for the product at any price. The Minister, Senator Crowley and myself have visited this plant. It is very encouraging to walk around a plant that is now so productive and, indeed, so up to date. The people who work there are very proud of the fact that they work there. It is only right to say that they are concerned about imports of foreign steel.

The Minister said that he is finding it hard to make new agreements. He also said that our EEC partners are looking for final dates in regard to whether or not we are prepared to give these people money. It is only right to say that we cannot back down on a thing we put £80 million into. Is it fair to tell the Government that by 30 September 1982 they must say exactly what they are prepared to put into this plant? The people and management in Irish Steel are indeed top-class people. Is it possible that over the next three-year period they may find other areas they might want to get into? For instance, we have in Cork a dockyard yet we do not supply that dockyard with any flat steel. Is it possible that Irish Steel over the next few years might be considering going into flat steel in some form and yet our EEC partners are asking our Minister to give approval by 30 September 1982 for moneys up to 31 December 1985? That is a little bit unfair. Is it possible that can be extended for the good of Irish Steel and for the good of everybody concerned? Is it possible that we can create a situation where we can make our own flat steel to build our own ships? It is very unfortunate to say that we now produce 84 items in Irish Steel yet we still have to import flat steel to build our ships. That is an area that should be looked into. It is an area that is very important to Irish Steel. I am proud that I am from Cork as regards this particular matter. I am proud that the Oireachtas are giving money to the Cork area for the future of Cork and the future of the country.

Mícheál Cranitch

Ní choimeádfaidh mé i bhfad sibh leis an mbeagán atá le rá agam. Ar an gcéad dul síos caithfidh mé fáilte a chur roimh an Aire. Is fear cumasach é, tá an-obair á dhéanamh aige agus, le cúnamh Dé, beidh i bhfád Éireann níos mó sna blianta atá romhainn. Níl dabht ar domhan ach go bhfuil an-shuim agamsa mar Chorcaíoch ins an mBille seo agus ins an todhchaí atá in ann do Irish Steel.

I wish to say a few short words on Irish Steel. The company have experienced many vicissitudes. They had to change their name a few times but still they are essentially the same business: they have the same skilled operatives and there is, I hope, a very rosy future for the mill. Up to 1978 we were dealing with the sort of mill that is now out of date all over the world. Thanks be to God, as a result of the replacement of the old plant and the installation of a smaller but very efficient mill we now have a plant there that is capable of doing great things.

There is one point about the replacements and the costings. I understood the cost would be about £13 million, but the actual cost is something in the nature of £70 million or £80 million. This would concern other industries besides Irish Steel. In recent years our advance estimates of replacement costings, modernisation and so on, seem to have been very far out when we come to the actual cost in the end. Can anything be done to rectify that situation, to come nearer to an estimate of what the final cost will be?

I will go on to say a few words about what I think the future may hold for us. We can have a certain amount of diversity. I hope we will have more as far as Irish Steel are concerned. They can make up to 80 different types of products. That is all to the good. The more diversity we have in industry the better because in today's world changes come overnight in the need for certain commodities, certain types of things. Even in the building industry changes occur very rapidly as regards the needs of builders in relation to the various types of buildings they are about to construct. As we all know, possibly the greatest potential as far as the State is concerned is the development of the construction industry. Steel plays a very very important part in that industry. With regard to those steel bars and other articles which we imported from Argentina, some people will say, if I may say with a little bit of levity, that already we have too many bars in this country. That is another matter. As far as steel bars are concerned, they are an essential part in the building industry at all levels. Can anything be done about those imports? Maybe the Minister will go into a little more detail when he is replying. I am sure the Minister has done everything humanly possible to reduce these imports from Argentina and elsewhere, or at least to take steps to see that such a situation will not occur again. In relation to imports from Third World countries, it is all right to support the Third World because they richly deserve support, but with labour conditions that do not exist here and with other factors taken into consideration they can produce at a far lesser cost than we can.

With regard to the potential for industry in Cork we have a very well-trained work force in the Cork region. I hope that the IDA, when the time comes for siting industry in that region, will give consideration to such ancillary industries that would arise from the proximity of an ultra-modern steel mill such as Irish Steel now are.

Mrs. Bulbulia

I would like, first of all, to welcome the Minister to this House. I wish him every success in his portfolio. I welcome this Bill. Its purpose has been dealt with by other speakers, but I would just like to express certain anxieties and reservations which I have in relation to it. They, too, have been referred to by other speakers. We all know that the steel industry, through the last eight to ten years, has been undergoing a most extraordinary period of turmoil and difficulty exacerbated, of course, by the fuel crisis, which has had an effect on the steel industry and, indeed, on building and construction, on steel processing and steel markets.

It is also very worrying when we hear that third countries are, in fact, dumping steel on our markets. That helps to aggravate what is already a very difficult situation. The basic question I see before us now is: can Irish Steel Holdings Limited, ever reach a point of economic viability? If not, how much, for how long and to what extent will the Government and, indeed, the taxpayers, be prepared to pay for the social and economic benefits of having our own steel production facility in this country? It is a very serious question and one to which we must address ourselves. It is one which it would be wrong of us to shirk facing up to. Some very searching questions need to be asked and some continuous appraisals need to be carried out. I am very pleased to hear that a team have already gone in to evaluate, that there will be a review and that reports will be forthcoming on the matter.

The forecast of 1977 regarding the cost of the facility of £30.8 million and the fact that it will actually cost in excess of £64 million need a great deal of explanation and justification. I must express my concern about this, lest we be foolishly and optimistically suggesting that we can export 70 per cent of the projected final production of 354 million tonnes into a market that is now over-supplied to the extent of 30 million tonnes, bearing in mind that 70 per cent of the raw material required would have to be imported from outside Ireland with all the consequent transportation costs to and from this country and its effect on viable sale prices. We should face up to the fact that perhaps we are at the point of no return. I say this not in any spirit of criticism of the management of Irish Steel Holdings. Indeed, I praise the work force for their dedication and determination and the management too, to see that this plant succeeds.

There has been considerable investment and encouragement given to this operation from successive Governments. I would like to place this on record. The searching question from which I find it difficult to escape and which niggles away at my conscience and the consciences of all thinking persons who are charged with public accountability in the disbursement of finance is: do we commit the State to an investment of £40 million, that is £25 million share capital and £15 million in guarantee without the absolute certainty that the company can be viable? I would like the Minister to comment on this question in his reply, please. I am very concerned in assessing the matter in my own mind to understand how the various estimates and projections can be so very far out given the short period of time in which they were actually made.

Some figures here may serve to show the areas which cause me to ask these questions which trouble my mind. The accumulated losses to June 1981 are £26.3 million, which is greater than the existing share capital. The projected losses in the year to June 1982 were £22.8 million and these were presented to the Minister on 23 April, based upon an output of 100,000 tonnes. The projected output now for 1982 is only 41,000 tonnes. Does this now suggest a loss of £30 million to £40 million? If it does, as the facts suggest, then the matter needs to be fully investigated before any further State investment is made, though I would not dream of putting down an amendment to that effect because I feel the consultative committee have gone in already and that the matter is under review.

The projected date of viability, according to Irish Steel management, is 1986-87 and this is based upon an output for 1982 of 100,000 tonnes. Does this now mean that the viability date might be into the nineties with a consequent State subvention until that date, which could mean an eventual State equity interest and a ministerial guarantee of, perhaps, £250 million? This is for an industry which might not be able to compete on world markets because of its location from a sales point of view, and because of the difficulties involved in the procurement of the raw materials.

The present suggested break-even output of 250,000 tonnes, which can now only be attained in 1990, is four times the present Irish requirement of the output available from the mill. The whole exercise is at a very crucial juncture and it behoves us to examine it very carefully. Any decisions that we make have to be made in relation to the economic viability, to the social and economic consequences of the area and the fact that the principal cost factor in a steel mill is energy the cost of which has soared to an unprecedented level and is causing great pangs and crises in every area of industry.

Of course, if this were a private company, or a private corporation, one would be approaching it quite differently. On the basis of information presently available I cannot see any board of directors giving approval for £40 million equity and guaranteed input, given the present economic climate, but I know, of course, that semi-State companies operate from different bases and with different attitudes in mind. I look to the Minister for reassurance and for clarification. While I know he cannot look into a crystal ball, nevertheless I feel that, given the accountability which must rest heavily on his shoulders, some reassurances are necessary. This side of the House would like to have them. I welcome this Bill.

Dr. West

I would like to welcome the Minister to the House, particularly because of his experience in matters of business and commerce. These are useful qualifications to have as Minister for Industry and Energy. I am pleased to see him here.

I can only give a qualified welcome to this Bill because I am in favour of the main sections of it which involve finance but I take great objection to section 5 which I shall deal with later. I am the Member who lives closest to this industry and who has always had an interest in Irish Steel. I believe it is important that we give every backing to our own native steel industry which dates, under Government control as a semi-State body, from 1947. It was built on the foundations of a private concern in Haulbowline and it employs, as the Minister said, a work force of 637. It has in the nature of a steel industry considerable payoff in terms of downstream industries. It gives us certain control over steel which perhaps in peacetime is not as great a benefit as it is when there is a crisis, but in an international crisis it is absolutely vital that we have control of our own steel industry. Since the main function of the plant is to manufacture from scrap, perhaps the Minister will tell the House what proportion of that scrap is supplied from Irish sources and how much we import. That is an important figure to know because if there was a crisis one of the likely consequences would be that the quantity of scrap we import would dwindle to zero. Would we have enough native scrap to keep our steel industry going at a level at which it might have to produce our full quota of steel.

The plant has had an interesting history. Irish Steel are a particularly interesting example of a semi-State body and, as I have said in the course of debates on semi-State bodies in this House, they are of great importance to us. They not only affect our commercial and industrial life but they are part of our national life. The decision to set up the first semi-State industry here, the Shannon hydro-electric scheme, was hotly contested in Leinster House. It is a great tribute to the foresight of the late Mr. Paddy McGilligan, then Minister for Industry and Commerce, that he saw this first semi-State industry through its early stages. It proved a great success and since that time, in general terms, we have been in favour of using the mechanism of semi-State bodies to fill in the gaps in our economy.

Now we have a vast range of semi-State bodies of which Irish Steel is one. Inside that range there is a division into commercial and non-commercial semi-State bodies. It has been the practice to treat these separately. The problems of the commercial semi-State body are different from, for example, those of the non-commercial bodies such as An Foras Talúntais which is a research organisation. It is a semi-State body doing a very important job but which cannot be judged in any sense by commercial criteria. When one looks at Irish Steel one is looking at it not just as an important national institution, which it is, but as a body which must be judged to a certain extent on purely commercial criteria.

A brave decision was taken some years ago to modernise the Irish Steel plant. It was a question of modernising or closing down in the long run. I have no doubt that the board of directors took the right decision and, as a consequence of that, we have now one of the most modern plants of its kind in the world. It is a great tribute to the foresight of the people involved, but, of course, this decision has to be paid for. I am certain it was the right decision and we now have a first-class plant in Haulbowline. However, just as that plant came into commission, the world steel industry collapsed. This brought about disaster in terms of income and return on investment and we have to face up to that fact. This is what the main section in the Bill is doing.

It is wrong to judge the prospects for the industry purely on the results of the last couple of years. One has only to look at our next door neighbour to see the collapse in the nationalised British industry. That collapse has been much more serious, tragic and wide-ranging there than the setbacks in our industry which, fortunately, is not so big that it has a devastating effect like the cutbacks in British Steel. The decisions taken to modernise were the correct ones. We have to be optimistic in judging this industry. We must not, in peacetime, neglect the importance of having control of the manufacture of steel sufficient for our own needs in times of crises. I share the sentiment expressed by other Members concerning the financial provisions of the Bill.

There are some other points I should like to put to the Minister. He said that it was essential that all countries strictly adhere to the Commission rules, otherwise market chaos would ensue. That is an absolutely correct and straightforward sentiment, but realities are different from theory. The Minister is well aware that when it suits them, other countries do not adhere to the Commission rules. The difficulty there is that their industries, relative to ours, are so vast. Ours is only 2 or .2 per cent of the total steel output of the Commission. We have to think of the possibilities in advance that Commission rules will not be adhered to. Maybe we cannot make it public but we have to have a strategy up our sleeves for dealing with a situation like that.

I was one of those people who was vigorously in favour of our entry into the EEC but I was, I hope, always aware of the difficulties not just of obtaining agreements but actually putting them into effect between the Nine or Ten. There is no doubt that a small industry like this is vulnerable. We have to look at life as it is and be realistic and say, "Well, people may not and will not always adhere to the rules, the quotas and whatever is set down on paper". We have to be prepared to have a defensive strategy which can help our native steel industry to get over this. I am sure the Minister, and his officials, must have taken this situation into account and will not be caught on the hop when someone breaks the rules. It takes six months to haul them back. They go before the EEC Commission and there is a complicated procedure to prove that someone has done something wrong in the first place and then work out some sort of penalties or some way of hauling them back. However, by that stage the damage may have been done to our industry. We have, in a sense, to take a rather aggressive posture of defence, if the Minister understands what I mean.

Like the other Members who have spoken I welcome the financial provisions of the Bill. I should like to refer the House to a very important historical work by G. P.S. Hogan who was executive director and chairman of the board of Irish Steel for a considerable time. He had great experience of the industry and his history of Irish Steel, published by Gill & Macmillan in 1980, is unquestionably the best work of this type in summarising the lifespan of the semi-State body, underlining its humble beginnings and the contribution it makes to our national life. Similar studies could well be carried out, with great profit to all of us, on the other semi-State industries. It certainly makes it easier to understand them.

I noticed that one of the contracts to which Sarsfield Hogan referred with considerable pride was one for the steel work in a hydro-electric scheme in New Zealand. It was a very large contract for Irish Steel and I believe Mr. Hogan was intimately involved in securing this important export order. It was connected with his expertise as a rugby football legislator that this contract was obtained in New Zealand. Certainly, the tributes to the production work of the Irish steel industry, when the steel work was delivered to New Zealand, were unambiguous and I have no doubt, absolutely deserved. The New Zealanders were delighted with the finished product of the Haulbowline firm.

That is the main thrust of my commendations and now for my distaste with section 5 which I have vainly protested about on every semi-State body Bill which has come before the House with very little support from other Members who do not seem to realise what is going on. They do not seem to understand what Devlin is doing to the semi-State industries or the difficulties which section 5 presents, or even its milder parent, that it is amending, section 6 of the Irish Steel Holdings (Amendment) Act, 1979. I have campaigned unavailingly against the principal recommendations of Devlin II. I am going to have yet another go and Members can put up with me for another while because I intend to introduce an amendment on Committee Stage. Not only is this pernicious legislation but even the section which it amends, section 6 of the 1979 Act, went too far. That was a sort of Devlin I and now we have got to stage 2. I will deal with this on Committee Stage. I want briefly to make a point, seeing that the Minister is from the commercial world and knows how important in a highly technological industry it is to appoint at the top the very best man one can get. That is what made the semi-State industries we have today into the tremendous successes they are. In the early days of the State there was no restriction on their salary. They got the best men, for example they got the famous engineer who was in charge of the Shannon Scheme, Mr. McLaughlin. I remember Mr. Paddy McGilligan saying to me, "It was McLaughlin who made me because he made that scheme work". He was the head engineer, he made the scheme work and he turned the Shannon Scheme from something which was bitterly criticised by the Opposition in the Dáil — I think it was criticised by the Labour Party because Fianna Fáil were somewhere else at the time; they were unavailable for selection——

Mr. Crowley

Slightly unconstitutional.

Dr. West

In any event it was the work of the head engineer on that scheme, Tommy McLaughlin, that made it into the tremendous success it is today, against terrific opposition. It is interesting to read that debate which went on for months and months. The Shannon scheme was written off as the greatest white elephant in Irish history. The phrases were long and flowing. There was obvious disagreement inside the Government party, but Mr. McGilligan stuck to his guns. This scheme is absolutely vital to our salvation, one could put it in almost religious terms.

What does section 5 do? It ensures that the directors in a highly technological industry can choose the best man but they cannot pay him. That is exactly what the section says. In a highly technological industry which is a commercial industry — this is what really gets me — and is judged on commercial criteria we have a situation where we can only, to put it crudely, pay the chief executive civil service rates. In terms of the money we are talking about, if we were really going for a good man to head a steel industry we would want to be paying him £50,000. We would not even be starting at £50,000 to get the really good ones. What is that as a fraction of the money that the Minister is talking about? It is 1/15,000 of the total sum that is being referred to. I remember all the Minister said, absolutely sincerely, when he was appointed, that he was going to bring in business methods and we were going to have a good commercial operation. Good for him, but here he comes in, having turned the full circle, and we get Devlin II in section 5. It is nonsense, absolute nonsense.

I will give the Minister one good illustration. I do not think he was here for the debate when I protested vainly against Devlin. People say Devlin must be great. That is nonsense and the philosophy behind Devlin is nonsense. I remember protesting in the Seanad when Mr. Justin Keating was on the Labour Front Bench. He said that as Minister for Industry and Commerce he spent his time fighting these guys to try head this off, but the civil service, and the Devlin guys won in the end.

I should like to quote the bland phrase used by the Minister because it is too good to be true. He said:

The only other provision in this Bill is a minor amendment to provide that the company should comply with directives about remuneration and conditions of employment issued from time to time...

If this continues the semi-State industries will be coming back to us every few weeks asking for money for the very good reason that we will not be appointing the best senior men.

This provision ensures that the directors can choose the best man but they cannot pay him. We know what is going to happen. That was not the case when the semi-State industries were set up originally. They had freedom to choose the salary and the man; one cannot do one without the other. This effectively ensures that it is ground right down to civil service levels. I am not saying anything against the civil service. What I am saying is that one cannot judge commercial criteria and expect to get the best men in industry and pay them administrative rates. It is just not on. Ultimately it is going to do infinite damage to the semi-State sector which is a vital part of our national life and it is becoming more vital every day as we have to pay out more money for its operations. I am not against the financial sections of the Bill but I intend to move an amendment on Committee Stage which I hope the Minister will accept to rectify the situation.

Mrs. Bulbulia

On a point of order, Senator West laid great emphasis on choosing the "best man" and the "best men". May I seek a reassurance from him that he meant that in the generic sense and that it was in no way a sexist remark?

An Leas-Chathaoirleach

That is not a point of order.

Dr. West

Absolutely, none whatever; the best person.

Mr. P. Reynolds

We find ourselves, as Senator West touched on, putting an extra £25 million into Irish Steel. I wonder with this amount of money if it will then be competitive. Since we entered the EEC we all know that Irish Steel were seeking orders. I do not know how good their men are but as a person who does some buying in that world I know they could improve. The type of attitude they have is that if one requires a load of steel from them one has to give them a number of weeks, or a number of months, notice before they prepare it. I am ashamed to say it — and I am as good an Irishman in my own way as anybody in this House — that at the moment in my own business we are importing all the material because their prices are not competitive. That is a serious situation. Unless something is done it is wasted money. I am a great believer in giving employment to our people but the Minister, or somebody, will have to look out after this because we will have every State company looking for money. We are losing a good bit of time on this and the day of helping these terrible lame ducks is coming to an end very rapidly.

Minister for Industry and Energy (Mr. A. Reynolds)

I should like to take the opportunity of thanking the Senators who contributed so widely to this debate and made some very interesting comments. Senator Reynolds said that Irish Steel products are non-competitive and asked me what I could do about it. I want to make it clear that they operate totally on their own in their own management sphere and it is up to them to price their products. The fact that prices were increased in Europe by 2 per cent in January this year was an attempt, and part of the overall Davignon Plan, to bring some sense of reality back into the steel industry in Europe which, as we all know, had practically collapsed. It was up to Irish Steel to consider whether to increase their prices by 2 per cent, to leave them as they were or, if they felt they could do more business, to reduce them by 2 per cent. It is entirely a matter for the management.

This brings me back to the point Senator West made about paying the man for the job and choosing the right man for the job. From my own background I am very conscious of this aspect in the semi-State area. In regard to the situation in Irish Steel, a new chief executive was appointed two years ago. There is no evidence to suggest that anybody left because of the salary restrictions there. The points which the Senator makes can be valid in certain situations but this is not the way to approach it. I have certain views in relation to certain operations. I do not think it is correct to move it as an amendment here when most other semi-State bodies are restricted in this way. It should be done at a higher level and it should be examined in detail to achieve a better result. I have not a closed mind on the subject but I think that is a fair response to points made to me.

I wish to thank all the Senators who contributed to this debate and who made some very interesting points. A viable construction industry is one of the areas in which Irish Steel can hope to prosper. Having said that and relating it to the recent importation of Argentinian steel, it is only right and proper to say that while Senator West made the point about being aggressive in your defence against EEC regulations — and they come up for review from time to time — I take the view quite strongly that in the first instance we have to protect ourselves when we see what is happening across the world and, indeed, across Europe, but we have to be seen to do it within the rules.

Let me make another point here in relation to the construction industry which will provide a very useful outlet for many of the products from Irish Steel. In this situation of very high unemployment and deep recession it is regrettable to have to record that so much foreign steel is being used in the construction industry right across this country and the sooner we realise that the better and return to patriotism in relation to the use of products of our major industries. I would appeal to the construction industry and to those who are associated with it and to those who make out specifications for it to bear this in mind. In my short period as Minister for Industry and Energy I have found it very difficult to reconcile the national interest with some of the specifications that go out from time to time and have gone out in recent months and of which I have taken particular note. I have taken a very strong line in this regard and I think it is only right and proper that I should do so. There are certain restrictions on what I can do but where I can do anything I will certainly do it in relation to the use of home-produced goods right across the economy.

This is one of the great ways in which we can help ourselves out of the present difficult situation. If we take the easy way out and let other people run our affairs for us and let others come in and take over the market then we will have only ourselves to blame. I would urge the construction industry and all associated with it to be very conscious in these difficult economic circumstances to look first at Irish products. In many areas where imported products are being used Irish products could be used.

The most recent example I can give is a local authority building scheme in County Cavan where 28 baths were installed at 48p cheaper than the Irish bath that was made in the same town. In this day and age in our national development and while we are trying to further national development that is an absolute disgrace. It is only one example. In my short period here, I have seen many such examples and I am taking whatever action I can to prevent this sort of thing happening. There is a limit to what one person or one Department can do. It applies in every other Department also. One of the major items in the Government economic plan that we are putting together will be a determined attack on our vast amount of imports. We are buying them; we are making jobs abroad for others to avail of. At the same time our hard-earned cash is going out in foreign exchange and making our balance of payments even worse.

To get back to the subject of Irish Steel, it is worth commenting that I am not saying that Irish products should be sold at any price; they must compete on a competitive and quality basis. Much can be done by the community and by every public representative in the matter of taking every opportunity to try to bring this to the notice of the public and especially the buying public.

The question of the over-run in expenditure in Irish Steel is a very serious point. It was estimated at the start that it would cost £35 million; the out-turn was £68 million. I gave the reasons in my opening statement. This is not the only area in which we found out too late what was going on. It is quite clear that we need a monitoring system on this type of project. We have seen others go far off the rails in the past and it is perhaps two years later before we find out about it. It is history then. It is too late and little can be done about it. This is exactly what happened here.

In the first weeks that I was in my Department I set up a monitoring system by which we can have information on a monthly basis about what is happening in the various projects within my responsibility. This will have to be continued. It is the only way we can find out exactly what is going on in relation to the vast expenditure of public funds that is involved at present.

I was asked by Senator Cranitch to see that the IDA would bear in mind in their IDA promotions in the Cork area industries that are complementary to the Irish Steel industry and I will certainly do what I can.

Senator Bulbulia asked if the company can be viable. I would like to answer that but I have to be honest and say that if I did say it was viable I could be misleading the House. That is precisely why I have appointed consultants in conjunction with the EEC to get in there immediately — they are in already — to try to produce the evidence that will show whether it is viable or not. We have to find that out. Furthermore, if the EEC allow any further aid to be approved, whether it is to be paid this year, next year or the year after, they too have to be satisfied about its viability and this is why I have gone into joint consultations with them so that we can establish whether it is viable or not.

One of the major reasons for the over-expenditure was that there was no fixed tender for this job when it started, which is a dangerous way to go into any major contract. It was started out on general design; there was no fixed tender and no fixed price. Some of the design was subsequently found not to be the correct way of going about it; changes had to be made in the design. Anyone who has any experience in that regard will know that the minute you move off a fixed line situation — Senator Durkan will be aware of that — the contractors or any people involved are only too delighted because the door is open then for the price to go up.

I have discovered in investigating this that there is a possibility that there is a liability on the people who did the designing and did certain work there. Irish Steel have taken up that with their legal advisers and if there is anything that can be recouped in that way it will be recouped. Basically, that is where the project went off the rails, in my view.

How much would it cost to make Irish Steel viable? The proposition that came before me in April for the next three years proposed a figure in the region of £80 million. The Senator will recall, and she did refer to it herself, that the projections presented in April were based on a production of 100,000 tonnes and that now because of market difficulties those projections look more like being 41,000 or 42,000. Naturally, that throws the whole prospect out of line and I could not put a figure on what it might take to make the concern viable. The facts and figures on which the projections were based are now out of date and new projections have to be made and this will be part of the consultancy work that is going on. It was envisaged that Irish Steel could become viable in the years 1986-87. Because the bases on which all these projections were made have gone out of line, the whole exercise has to be done again. This is an area that has to be clarified in time for the EEC to see if the company is viable and, secondly if it is viable, what amount of aid will be needed and where it is to come from.

Senator West commented on the fact that it is easy enough to talk about this industry in peacetime but not so many years ago the construction industry in Ireland was left short of steel because of the buoyancy of the market. That is a factor to be considered at the end of the day when all the facts are being considered.

On the matter of viability, I have made my position quite clear. I have given all the facts I have. I do not know the basis for the figure the Senator mentioned of £250 million. The original figure was £80 million; £250 million might be stretching it a bit too far. Whatever the figure is, we have to find it out, because we must all be concerned about whether we are going to pay that sort of money or whether we are not. Both Houses will have the opportunity of looking at the matter again.

In relation to the question of borrowing, the situation about this £25 million we are talking about is that the banks were owed that amount. Further borrowing was out of the question and so it was a matter of getting this measure enacted to keep Irish Steel afloat for this year and to decide on the question of long-term viability. We have to produce all the facts and then let us, in both Houses, decide.

The amount of scrap produced in Ireland that would be required for Irish Steel at 100,000 tonnes production capacity is approximately 40 per cent; 60 per cent would have to be imported. If you are talking about a 250,000 tonne production, it goes down——

Dr. West

What percentage of scrap do the Irish factory use at the moment?

Mr. A. Reynolds

It is all Irish.

Dr. West

None imported?

Mr. A. Reynolds

No. On a 100,000 tonne production, 60 per cent of it would be imported but at the level of production at the moment, none. I take the point about the rules of the game and I think I have commented fairly extensively on them as to what we can do in relation to them. Views come up regularly in relation to the agreements that exist between the EEC and the non-EEC members in relation to finalising both tariffs and quantities, and I might say at this point that before this steel was imported from the Argentine my Department lodged a complaint in anticipation of it coming because we heard through the grapevine that it was on its way. The company lodged the anti-dumping complaint after the steel arrived, but in that situation it is very difficult to prove because you must prove that the price at which it is sold here is less than what it would be sold at in the home market of Argentina. That matter is being pursued by the Department of Trade, Commerce and Tourism who are the people directly concerned with it, but from an industry point of view I lodged a complaint in anticipation of it coming in. I have since spoken to the Commissioner concerned in relation to it, pointing out to him the effect that that sort of quantity arriving on the Irish market can have on a company like Irish Steel. It is difficult to put that in proper context because this was a consignment of certain steel bars which although produced also by Irish Steel are not one of their most profitable lines. In addition, they are not the only supplier to the Irish market, so the full brunt of the effect of the 11,000 tonnes would not fall solely on Irish Steel in the first place. Secondly, their product line in that regard is not one of their best lines, and furthermore it is very difficult to identify the supplier. There are very considerable difficulties in that regard. However, as I said before, if the people concerned in the construction industry and those affiliated to it did what the country might expect them to do in the national interest, the problem could well be reduced considerably.

I think I have covered fairly accurately the other points made to the question of monitoring the continuing situation in Irish Steel, having the consultancy report available as soon as possible so that the Government can in the first instance make the decisions in relation to it, continue our discussions with the EEC in relation to the future viability and the aid that will be necessary for the company, and finally that the report will come back at the end of the day to both Houses for final ratification.

Senator Cregan asked about a better deal with the EEC in relation to it, and I have said that at the next meeting at which the quantities and tariffs are being reviewed the situation in relation to Irish Steel will carry our full weight, as it has done up to now, because we are very conscious of trying to keep our only steel industry here. It certainly represents a very small margin of the total market in relation to EEC, 0.2 per cent, but nevertheless significant in the Irish context. Having said that the future viability of Irish Steel will rest to a large extent on their ability to export 70 per cent of their products, and indeed an area I think that they should be looking at very seriously, and I have passed this information along to them, is the Middle East where the major construction of the world is taking place. There should and may well be opportunities there to be capitalised on.

Part of the reason for the increase in price was part of the Davignon plan which did not demand that Irish Steel increase their prices — they could quite easily have kept them down — but they have to be the judges in the market place. Both Houses have given them that freedom.

I have by and large covered all the points made. If there is any point that I have left out I did not do so deliberately. We all have to recognise the difficulties in the market place for Irish Steel at the moment. I was in America a couple of weeks ago and I spoke to US Steel, and in discussions with them in relation to the total steel market they said that one thing in our favour is that we are lucky to have a mini mill. That is the only chance that any sort of steel mill has in the depressed market in which we exist and that it is now a question of trying to get the act together, to try to get it right and it is in the national interest that we get it right.

Mr. Cregan

The Minister has not answered my question regarding the commitment of the EEC before 30 September 1982 as to what we shall be doing up to 31 December 1985. Is there anything that can be done about it, since it really ties the Minister's hands?

Mr. A. Reynolds

I am sorry, I overlooked it. I thought I had partly covered it but I have spoken to the Commissioner concerned. He knows the time constraints that are there, that the EEC are part of the consultancy examination that is going on. There will be some leeway there, but not very much, because it is part of an earlier agreement drawn up under the Davignon plan that we would get derogation for a period but not for an indefinite period. It is in the interest of Irish Steel, in the interest of the country and of national finances and so on that we know the precise position as soon as we can and take whatever decisions that are necessary at that point in time.

Question put and agreed to.

Agreed to take remaining Stages today.