The main purpose of the Bill now before the House is a straightforward one in itself. Comhlucht Siúicre Éireann Teoranta are, as Senators will know, in most respects a company like any other. They are incorporated under the Companies Acts, and their liability is limited by shares. However, they are distinguished in law from other companies by the fact that their freedom of action in regulating their affairs is circumscribed by the Sugar Manufacture Acts, 1933 to 1973. This body of legislation obliges the company to deal with a certain number of matters in their memorandum and articles of association in a manner specified by law. These matters include the voting rights attaching to shareholdings in the company, the nomination and election of directors, and the volume of the company's authorised share capital.
It will be apparent to Senators that the main concern of the Oireachtas in enacting this legislation was to provide a framework for sugar production which satisfied two criteria. First of all, the framework had to admit of commercial operation, and had to furnish the yardsticks against which trading performance could be evaluated. Hence, the ready choice of the format of the joint stock company. Secondly, the framework had to be at once tight and transparent in view of the substantial State interest in the company. Hence the restrictions in the legislation on what, for any other company, would be matters for themselves to settle.
The present Bill, as I have said, has a purpose which is straighforward enough. It is designed, for the most part, to broaden the company's capital base, and to allow them to increase their authorised share capital from its present level of £10 million to a new level of £75 million. This will appear to Senators to be a sudden, not to say dramatic, increase, and I will come back to the reasons underlying it in a moment. Before doing so, however, I think it would be useful to place a number of considerations before the House.
First of all, no one who has had anything to do with the development of argiculture in Ireland can fail to be impressed with the role that the company have played in their 50 years of existence. They have been in the forefront of change and innovation for most, if not all, of the adult lives of most living Irishmen. They have spearheaded the creation of most of the services that make it possible for the agricultural sector of the economy to function. In so doing, they have been a major employer, building on native capital and resources the foundations of a local and regional economy whose effects are felt well beyond the sugar industry itself.
Over those 50 years, the company have turned in a profit on all but a very few occasions. In fact, the majority of those occasions have presented themselves over the past two or three years, and it is in the climate of the past two or three years that the roots of the company's difficulties are to be found.
What those difficulties are has already been the subject of examination and debate in this House. Some 16 months ago, the Seanad debated the affairs of the sugar company, using as a basis an excellent and informative report from the Joint Committe on State-Sponsored Bodies. That report has, I believe, proved to be a vindication of the Joint Committee's establishment. Apart from its clarity and conciseness, it is the starting point of the review of the company's affairs that has culminated in the Bill which the House is now discussing.
To place clearly on record just what the company's problems are, I think that a brief review of the report's contents and recommendations will be of value to the House. Senators will remember that the Joint Committee began their examination of the company's affairs at a time when a series of inter-related problems were coming to a head. The most prominent of these was an anticipated loss in the year ending September 1980 of substantial proportions.
As the committee noted, the company had been implementing a substantial programme of capital investment and plant renewal since 1975. Total capital investment since 1975 had amounted to £70 million, financed almost entirely from borrowings from commercial financial institutions. The company's purpose in undertaking the investments was to achieve nothing less than the survival of the sugar industry. Plant was obsolescent, and there was a risk that the efficiency of the company's production units would be seriously impaired at a very bad time. The committee's report was unambiguous in pointing out the financial consequences of this state of affairs. It stated unequivocally that large recurrent interest charges were constituting a serious drain on the company's resources.
The debt-equity ratio, the committee noted, was in excess of commercial norms to an unusual degree, and interest charges had to be met from operating profit. The committee pointed out that a large company in the private sector would long since have taken steps to raise additinal capital to correct this state of affairs. The committee accepted that the situation should not continue. They expressly supported the company's view, put to them during their hearings, that some £25 million of new equity capital was needed as a first step. They believed that further calls would have to be made on Exchequer funding in future years in order to ensure the development of a prudent and stable capital structure for the company.
Notwithstanding the company's very real financial problems, the committee did not feel justified in attributing all of the current difficulties to them. Among the causes of the reversal in the company's fortunes, they identified unfavourable price developments on the cost front, and the effects of the recession on demand in the company's markets. However, the committee made it quite clear that the principal solution lay in Government action to correct the debt-equity imbalance.
As I have said, the committee's report was considered by the Seanad in early 1981, and Senators contributed substantially to the reflections that were going on both in the company and in the Government Departments concerned. The Tánaiste, who was Minister for Agriculture at the time, informed the House that the report was the basis for that reflection, and that he would be inviting the company to put their views to him on the means by which full viability might be restored rapidly to the company.
In May 1981 the company responded. They stressed, as they had to the Joint Committee, the need for new capital. They had three purposes in mind in doing so. First, they emphasised the need to deal with the erosion of the company's financial base brought about by continuing food sector losses, and by the necessary investment being carried out on the sugar side. Secondly, they pressed the need to continue with the modernisation programme. Thirdly, they put the point that the debt-equity ratio had to be brought more into line with commercial norms. For these three reasons, the company asked that their equity capital be brought up to the level of £75 million.
After examination in my Department, the company's response fell to be considered in July 1981 by the Coalition Government. That Government, quite rightly in my view, decided in principle to make new capital available to the company, but reserved a decision on the amount, manner and timing of the capital injection until they obtained the results of an independent examination of the company's financial affairs to be carried out by a firm of consultants. In this way the company's creditors were reassured as to the Government's intentions, while the hasty commitment of public money, which might not have taken account of all the factors involved, would be avoided.
In March of this year the consultants reported, and, as a result, the Government believe they are now in a position to make a rational and considered response to the company's needs. They have decided therefore to make £30 million available to the company in 1982. They anticipated that the need for further capital may arise over the coming three or four years. Accordingly, they are proposing enabling authority for this in the present Bill, in line with the usual practice for Central Fund issues of this kind.
I will now come back, as I said I would, to the substance of the Bill before the House. I said earlier that the increase in the legal limit of the company's authorised share capital would perhaps strike Senators as sudden and dramatic. It will put the increase into perspective if we recall that the company's authorised share capital has been at £10 million since 1973. In 1973 the company employed fixed assets valued at some £6.3 million. In 1981 that figure was £38 million. As the company's modernisation programme progresses, that figure will also increase. Had the statutory limit on the company's authorised share capital not existed, there would no doubt have been a gradual adjustment of the company's capital structure to bring the gearing ratio back into line with commercial norms.
The statutory limit does exist, and only the Oireachtas can expand it. In amending it, the Oireachtas is sanctioning a process which, in a commercial concern, would have begun some six or seven years ago, and, is therefore, in a certain sense allowing the company to get on with a backlog in their financial restructuring. A certain measure of flexibility for future years is also being given. Were it not for the confidence that lenders have in the State sector, this would have proved problematic for the company. As it happens, however, there has never been any serious doubt about the Government's commitment to the company as a shareholder and as a sponsor.
The £30 million which the Government propose to make available in 1982 will be subject to conditions. The main one will be the submission by the company of a clear and specific programme for the rationalisation of their food processing activities and of the beet-growing and sugar industry. I should like to emphasise that it is for the company to determine the details of that plan, and to demonstrate to me that is is satisfactory. The yardstick will be that of increasing overall efficiency with a special eye on the restoration of financial balance to the company's affairs.
The figure of £75 million does not imply an immediate injection of that amount. It is the kind of figure at which the company's share capital might reasonably be set once the investments they have undertaken are completed. It represents the share capital some years hence of a sugar company with up-to-date plant and assets, with their sails set for the kind of competitive operation which characterised their earlier years.
Expansion for a food processing concern can only take place if their suppliers are committed to it as well. It is disappointing that our EEC sugar production A quota of 182,000 tonnes has hardly been reached in any recent campaigns. Renegotiation of production quotas is only two years away. If we do not fill our existing quota, we are undermining our own position in that re-negotiation. There is, therefore, a very heavy onus on farmers. We must be able to preserve our slice of the action if the sugar company are to survive.
If we apply this reasoning to the Tuam factory, it still holds good. In deciding that the factory should remain open, the Government had two things in mind. First of all, they recognised the factory's pivotal position in the regional economy of Connacht. Secondly, they wished to see to it that agriculture in the west — in this instance beet-growing — has the greatest number of outlets possible.
Finally, as far as food processing is concerned, we must recognise that the hopes of the early sixties have not been realised. Food processing in the past few years has been at the root of the company's inability to turn in consistent profits with which to fund re-investment. In saying this, I do not wish it to be thought that the Government have doubts about the future of food processing as a company activity. They have not. There are problems, as the joint committee noted. The home market is small, and export markets are subject to fierce competition from trans-national enterprises. The solution for the food division lies in developing a strategy suitable for the scale of their operations in order to turn their activities around. The need to do this as soon as possible is apparent when we consider that this year, for the third year running, losses will be in the £12 million bracket.
The Bill before the House limits itself to amending certain financial provisions of the Acts. Its immediate function is to authorise the Minister for Finance to make certain issues out of the central Fund. This authority will be drawn on in 1982 to the extent of advancing £30 million to the company. Future advances will be made in accordance with the circumstances then prevailing.
The main shareholder in the Sugar Company is the State. The main beneficiary of those holdings when profits are returned is the State. In passing this Bill into law, the Oireachtas will be enabling the Exchequer to perform a duty which lies upon shareholders and to correct the under-capitalisation which besets the company at present. The State is now, as it has been in the past, a willing shareholder, and the Government have no wish to change that. Therefore I commend the Bill to the House.