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Seanad Éireann debate -
Tuesday, 10 May 1983

Vol. 100 No. 7

State Guarantees Act, 1954 (Amendment of Schedule) Order, 1983: Motion.

I move:

That Seanad Éireann approves the following Order in draft:

State Guarantees Act, 1954 (Amendment of Schedule) Order, 1983

a copy of which Order in draft has been laid before the House.

Minister for Fisheries and Forestry (Mr. P. O'Toole)

This resolution arises in the context of State support for the chipboard manufacturing plant at Scariff, County Clare.

Over the past decade difficulties experienced by the pulpwood-using industry in Ireland resulted in the closure of three of the country's four mills, the exception being Chipboard Ltd., Scariff, which went into receivership in April 1980 but continued in production temporarily with the aid of State assistance to the receiver.

A package for restructuring the firm, involving the setting up of a new company, namely Chipboard Products Limited, in which the Minister for Fisheries and Forestry became the major shareholder, was completed on 13 May 1981. Briefly, the restructuring arrangements involved an agreement between the Minister for Fisheries and Forestry and a local consortium to purchase the assets of Chipboard Ltd., in receivership, and form a new company to carry on the business of particle-board manufacture at Scariff.

The board of the new company comprises four State directors and three directors representing the private investors. The company have an ordinary share capital of £327,000, of which the State subscribed £334,000 and private shareholders provided £193,000. The first total I read should have been £527,000. There is provision for a share option scheme which, if taken up, would increase the private share capital to £231,000. The State also subscribed at par for £200,000 15 per cent redeemable cumulative preference shares.

A loan of £466,000 for a period of 12 years was provided by the Department of Fisheries and Forestry and there is provision for capital grants, totalling £1,012,000 over a three-year period. The restructuring package also incorporated a timber supply agreement with the new company whereby the Forest and Wildlife Service would, for a period of three years, pay the firm a subsidy to harvest a proportion of its wood requirements from certain State forests and allow it to remove the wood free of charge. Under this agreement a payment in the region of £600,000 has been made to the company in respect of timber harvested to date.

As well as the direct financial investment and timber supply agreement referred to, the State agreed to guarantee £400,000 of a bank loan of £750,000 to the company. This guarantee necessitated an amendment of the Schedule to the State Guarantees Act, 1954, the order in draft of which was approved by the House on 9 July 1981.

The financial performance of the new company has been kept under review. They are still beset by problems which are partly due to the poor economic climate prevailing since their formation. Sales have been adversely affected, competition from imports has been particularly severe and the company have also experienced some quality problems with their manufacturing processes.

In June and November 1982, the Government decided to arrange for the provision of additional working capital of £200,000 and £500,000, respectively, for the company by way of further bank loans subject to State guarantee. It is in this context that the order in draft, now before the House, arises. This decision was taken following a review of the company's overall position and from which a number of options as to the future of the company emerged. I should add that one of these options is currently being pursued with a view to securing the involvement in the company of a measure of external technical expertise and financial investment in the interests of ensuring the viability of the industry, including the protection of employment in a situation where an indigenous raw material is used to manufacture a product with considerable domestic and export potential. I recommend the resolution to the House.

Did I understand the Minister to make a change in the private shareholders' amount?

I misread my script. I will read the sentence and clarify the position. The company have an ordinary share capital of £527,000, of which the State subscribed £334,000 and private shareholders provided £193,000.

Thank you.

It is quite a few months since the Minister was appointed but I did not have the privilege of welcoming him to this House. I welcome any money given to east Clare and we are talking about the chipboard manufacturing plant in Scariff, County Clare. It is not as great as it may seem, because it is money granted by the Government to cover losses in working capital, with very strict conditions attached. I should like to ask the Minister is there any possible chance of capital investment in Chipboard Limited? Grants have been approved, but in a particular kind of way. Chipboard, Scariff, have not got finance backing. They have to get machinery, equipment, and so on, and it is only then that they will get a refund of 60 per cent of the costings. In dealing with banks today, this is quite a job.

Oil alone costs Chipboard £300,000. While I appreciate that the Minister is providing finance to keep Chipboard open and working, I should like to know is there any possible chance of capital for investment. I know that it is a bad time to be asking for this but it may not be too costly when we consider what the Government are doing for Chipboard.

I do not have the advantage that Senator Honan has of personal knowledge of the manufacturing plant at Scariff, County Clare, but it is important for us in considering this resolution to reflect on what the Minister has indicated in his speech, that because of the closure of three of the country's four mills for the manufacture of chipboard this is the remaining chipboard mill in the country. As the Minister said, it is using indigenous raw material to manufacture a product with considerable domestic and import potential and, therefore, theoretically it should be a very viable project. It should be something capable of development to meet the employment and productive needs of this country. Yet, I think it is implicit in what the Minister was saying and indeed in what Senator Honan was saying, that the situation is very serious. It would be useful for us in this House to have more information on the kinds of problems that are faced by a company which happens now to be the only domestic company producing and manufacturing chipboard, given that it is using an indigenous raw material.

The Minister referred to the fact that "sales have been adversely affected, competition from imports has been particularly severe and the company have also experienced some quality problems with their manufacturing processes." Perhaps the Minister would tell us where the imports are coming from and the level of imports. In other words, are these all inter-Community imports from other EEC countries where we might have very considerable difficulties in restricting them, or is there a potential in restricting non-EEC imports in a way that would help our home-based industry in the short term?

Secondly, what is the nature of the quality problems in the manufacturing process that this company are encountering? Thirdly, and this arises from a comment that Senator Honan made in relation to energy costs, is it in any way part of Government thinking in relation to companies like this that we might distinguish between the uses the energy is being put to? There was a very interesting proposal by the French Government in recent times to distinguish between energy for productive purposes and energy for other purposes and to ensure that energy would be available for productive purposes at a lower cost.

If the oil acquisition is a very substantial cost to this company, then it ought to be an important factor in that, to try to devise ways of ensuring that the energy to companies like this using an indigenous raw material is available to them at a cost and in a manner which would make them competitive with foreign competition. The likelihood is that is one of the important factors in allowing imports to this country to be much cheaper and to undercut the Irish product. If we are going to begin to cope with the very serious problems facing this country, particularly in the area of youth unemployment and the regional problems facing us, then I think it is a matter of the gravest urgency that we do not just let this go like a dose of salts through this House but that we consider some of the underlying implications in the Minister's speech and that we try to see if we can do something about the factors that make it difficult for this particular company, even with very substantial State aid in the form of investment, and State guarantee, to be viable.

It is vital that companies like this become important contributors to the economic upturn in this country. It is important that we take time in this House to reflect on these factors, try to make our input in response to this resolution and see whether it is possible to do more than merely increase the State guarantee. It is important that we suggest ways in which the whole approach may be in some way revitalised and energy costs reduced so that this unique chipboard company can develop and possibly contribute to the setting up of other companies also using an indigenous raw material. I hope that the Minister will give us more information on which we can make an assessment.

In common with other speakers I am delighted that discussions are taking place which might prove favourable towards the continuing of this factory in Scariff which I know quite well. Coming from the south-east I have seen the loss the factory was to be to Waterford not alone in employment but also to the usage of forest materials from that area.

One of the figures thrown out by Senator Honan was that £300,000 was being used in Scariff for oil. It seems most peculiar that when you have a fuel and energy potential which is being used as a raw material that this fuel cannot be used in the processing of the material. It is most peculiar that they would use oil in a wood-processing plant. That would be like putting in oil-fired central heating into a coal mine in Kilkenny: that would be the only analogy I can give.

In small docks around the country, for example, in New Ross, Cork, Waterford and various other small ports one can see large bundles of culls from Irish forests being sent out to Sweden and Norway for processing. I presume they are using these materials either to make paper or chipboard. If it is to make chipboard, I presume that it pays these people in the State forest organisations in Sweden to import from Ireland, process and then re-export back to Ireland. That seems ludicrous.

In his speech the Minister mentioned that the Department of Fisheries and Forestry have agreed that the chipboard company would be able to take some materials from the forests at no cost. I agree that this policy should be continued. We have coming on-stream large tracts of native timber which can be used commercially. One of the problems we have is getting into these forests for the orderly culling of the waste timber in these forests. If the factory in Scariff goes, the usage of these culls will be cut down and they will be used for uneconomic purposes. In Kilkenny a factory has been set up which is using waste timber to produce timber logs. This is an excellent industry and it just shows how timber can be used.

In terms of the financial package it is essential that it be set up as soon as possible so that the industry is not just being operated on a day-to-day basis which leaves bankers to feel that they should not be involved. There are also the social implications in that a large number of workers feel their jobs are threatened constantly and if it is only short-term rescue money that is being put in that does not give much hope for the future. I think there is a very viable future for that industry but the sooner a financial package is put together that will ensure the long-term viability of the project the better. The Minister mentioned that one of these options is currently being pursued. Will he give the House any information as to what other options he has in mind for the restructuring of the company and the long term viability of the company.

I welcome the resolution and the financial support the Minister proposes to extend to the chipboard industry in Scariff. I come from the area and I know the contribution the chipboard plant has made to Scariff and east Clare has been substantial over the years. It is a major industry in a small provincial town. It is the only major industry in the east Clare area and the spin-off from it and from the employment provided has been important to the economic welfare of the east Clare area. It has a capable and a trained work force, whose members have been in the industry for many years and that is another reason why steps should be taken to preserve this industry. When Chipboard Ltd. came to Scariff many years ago the fact that it was a wood-processing industry was an incentive to people in that area to plant trees on land that was suitable for very little else. The result is that these trees are now coming into maturity which is another reason why the activities of the chipboard industry in Scariff are important.

It is an industry which is processing a native resource. It is a mystery to many of us how an industry involved in the processing of a native resource such as timber has found it so difficult to become viable. Inquiries have shown that part of the problems in the Scariff industry was our reluctance to change to modern technology, perhaps caused in the first place by an absence of sufficient working capital. I am encouraged by the Minister's statement to the effect that steps are in progress and negotiations are taking place with regard to the future viability of the industry at Scariff. I hope they will have a speedy and successful conclusion.

I look forward to the replies of the Minister to the various questions that have been raised. This is an industry which is highly desirable. It is maintaining badly needed jobs in an area, east Clare, that is not characterised by any great industrial development. It is using a native raw material. Much of the manufacturing industry in this country depends on the importation of expensive raw materials so this makes the case all the greater for supporting this type of plant in Scariff. It can contribute to domestic needs and contribute to valuable exports which are urgently needed, however small, at this time. I heartily support the motion.

I formally seconded this motion to enable the Minister to keep the promise that has been made to Scariff Chipboard along the lines outlined in the Minister's speech. This was a company of very high repute until they ran into financial difficulties in 1980 and still quite a few people are owed money by this company. The company have not been able to settle their financial affairs to the fullest and they have gone through the legal process to prove their inability to pay. It was a particular pleasure to us to know that the Government were prepared to step in. The raw material for this enterprise grows in abundance in my area and in the adjoining counties — County Waterford and County Clare in particular.

Senator Lanigan raised a very important point, namely, the question of the export of some of the resources in timber that we have in abundance in the south of Ireland. I am particularly concerned because I also heard rumours in the south-east when Munster Chipboard went that we, and that included the Department of Fisheries and Forestry, were allowing the exportation of valuable timber to Sweden and other places for processing and re-importation to this country. They were getting it cheaply from us, adding a considerable value to the product and we were expending, through the construction industry, a lot of money to buy it back.

Chipboard is a specific type of product. It has limitations in its use and because of that the company had run into difficulties about quality. People in the construction industry talk about its lack of quality for certain purposes, but because the native producers of this product suddenly were in the hands of the receiver the construction industry were faced with the only option open to them, the importation of comparable products. Arising from that, the construction industry discovered that important comparable products were available at a cheaper price.

Senator Robinson said that if it is the input costs of energy that is causing this differentiation in the price between the home-produced product and the imported product, we should look at the area of assisting the company to try to compete with the imported finished product. I would like to say also that Medford Corporation of America are in the final stage of construction of a massive enterprise in my constituency, with the assistance of the IDA, to produce a similar product but of a much better quality finish. It is not chipboard, it is closer to beautyboard. The reason they decided to start here is that it is in the heart of land which has an abundance of timber that can be used only in some sort of a processing operation like chipboard or Medite which is made by Medford Corporation.

I want to ensure that there is an abundance of the home product available for the two factories that we will now have, Scariff Chipboard and Medford Corporation, in my area, and that these companies will not be forced to look elsewhere for their products because this would be against all the economic advice that we give to other industries. This is particularly important for us because we can produce and we are producing an abundance of the product at the moment. This is one of the natural wealthy resources of our country and we would like to ensure that the best possible added-value is put on this product so that it can be used for export and also for use in the home market in the construction industry. Perhaps the Minister when replying might take up these few points.

The experience of the country in wood processing industries has been a sorry one over the past few years. I have had some considerable experience of and some connection with some of the firms involved. The number of firms that has gone out of business is startling and no proper examination in public — although I believe an examination is taking place in private — has taken place on the reasons why this has happened. Clondalkin Paper Mills were substantial users of wood products and are no longer so.

The Munster Chipboard Company, Irish Board Mills in Athy and the Scariff company, who are under discussion here, have been mentioned. I think, incidentally, the Minister is to be congratulated on the fire brigade action which he is carrying on. Successive Ministers are to be congratulated in so far as they have decided they will not allow Scariff to close. That is a good decision. It is a pity the same decision was not arrived at with regard to some other projects and that similar definite decisions were not taken by earlier administrations of all political views.

The problem is that the structure of this industry in Ireland is incorrect. As Senators know, the area in Europe which is most associated with developments of this type is Scandinavia. What is not generally known is that even in a country like Sweden the parts of the industry are divided into two: the forestry portion is in private hands by and large and the processing portion is in State hands. The reason for that is that the forestry, which is the private portion, is the profitable part. The processing portion of it is generally considered to be unprofitable, at least on a cyclical basis and no private individual can carry the risk involved in the processing of wood materials.

In Ireland the position is the reverse. The State owns the forestry which should be profitable, and we have left private industry to look after the processing side. These private industries have not had the financial resources to withstand the cyclical effects of trade recessions. That is why we have gone out of business. That is why we are now faced with the position of exporting timber products in the raw. This is a scandalous situation. In the United States and in Canada the situation is slightly different. They have an integrated industry. The same corporations own both the forests and the processing. In that way they can limit the amount of the losses which they suffer.

It is crying out in this country that we do one of two things, and I do not mind which we do. Either we should privatise the forests and get a package deal with some private industry to establish large processing units in the country or we should nationalise the processing units. If they are already gone, as they are in some cases, we should establish new ones. The only way we will be successful, in my opinion, is for the same person to own the forests and the processing units. This is absolutely vital. Effectively that is being done already. It is being done because these people are being given the wood products for the cost of harvesting them. That is right and proper, and the Government are to be congratulated on it. It is most important that we would have a more integrated approach towards this very important industry which is very different from other industries in so far as the raw materials are, to a large extent, available within the country.

It is also true to say that in this case the other substantial portion of cost is the energy cost. Basically, if my memory of the costings of the firm with which I was associated are correct, the costs were approximately one-third, one-third, one-third: one-third being raw materials, one-third being energy and one-third being labour. That is my memory of that situation. The energy cost could be properly and significantly met through the greater use of an Irish natural energy source, peat. One of the firms involved was doing that. It is a shame that the State did not exercise the option it had in this particular case to take over the company and solve portion of the energy problem by the use of native turf. I do not think the question of labour is an issue. The attitudes of the trade union in this regard has been highly responsible and they are to be congratulated.

There has been a considerable problem with regard to dumping of wood products in this country. It is about time we faced the reality of the situation that there are two kinds of dumping, even though one of them may not be considered dumping under EEC regulations. There is a dumping of wood products which has taken place from places such as Spain, Latin America and the Scandinavian countries. In particular, we are vulnerable to the tropical countries because as one goes down from the Arctic Circle the speed at which timber can be grown increases. Just as in this country we can grow our fir trees much faster than they can grow them in Scandinavian countries because of our climate, similarly as one goes down through the tropical forests in Central and Southern America, they can grow their eucalyptus trees and the various other trees they use for these purposes much quicker than we can and, correspondingly, they are cheaper. The dumping which has taken place has been of that kind and variety. There was a manoeuvre some years ago by the Swedish authorities in the devaluation of their kroner and as a result of the devaluation of the kroner the large stockpiles which they had built up were suddenly cheaper. Theoretically it would not have been dumping putting their product into a country at a cheaper price than obtained prior to the devaluation.

The other kind of dumping which has affected this industry is dumping within the EEC. I am quite aware that the EEC consider their whole area as being one unit and they do not recognise the concept of dumping within that unit. However, the sale of inferior material by a dominant neighbour onto a weaker neighbour is dumping and should be tackled by the EEC. In so far as surplus production is available in a place like the United Kingdom in respect of some products, and in so far as portion of these products which are of an inferior quality are dumped even at a realistic second price, they can have such a drastic effect on our home market as to constitute interference in the proper conduct of the trade within this country, and that also has had its serious effects. We should give very serious consideration to making strenuous representations to the Commission of the European Economic Community on this whole problem of inter-EEC dumping.

Within the confines of what I have said, the present suggestion of the Minister and the order which is before us should be approved and I will support it wholeheartedly, but only as a temporary measure to enable proper examination of this most vital industry. I look forward to the report from the Minister to the House in due course to the effect that such an examination has taken place and some indication of further developments which we can expect to utilise the substantial amounts of raw material which will be coming on-stream over the next 20 years in this area.

I should like to welcome the Minister, to wish him well in his job and to congratulate him on this legislation before us.

There is one thing I would like to mention, that is with regard to the ownership of the production side and the processing side to get the best return. Perhaps the answer is contained in a combination of private ownership and State ownership. I suggest that perhaps this would be considered in the context of the production side on the one hand, that is the growing of the timber, and also in the context of the processing and marketing.

There are vast areas of land in this country that are not being utilised at present, that have little or no agricultural potential, but with vast potential for forestry. For that reason I feel that a combination of involvement by the State and the private sector could do enormous good to maximise the potential of these vast areas. As I see it, the answer with regard to the whole direction of this business at primary production level, processing level, marketing level and right through is contained in a combination of the State and the private sectors. Finally, it is obvious that we are importing timbers of various sorts that perhaps we could be producing here. This is a vast area that needs to be looked at.

Minister for Fisheries and Forestry (Mr. P. O'Toole)

I would like to thank sincerely the Senators who have contributed to the debate, to thank those who wished me success in my Department and to say how glad I am at the depth of knowledge expressed here. Indeed, it has been a very worthwhile experience for me to sit here and listen to the contributions made by people who know much more than I do about this industry in general. I will endeavour to reply as best I can to the Senators who have made contributions.

Senator Honan, speaking from the constituency in which Scariff is located, referred to the financial aspect of the company and made the point that she was under the impression that moneys provided by the Government catered for trading losses only, that there was no provision for capital investment. I should like to disabuse her of the idea that that is so. There is provision for capital investment in this company and in relation to the procedure for payment of grants to the company the normal procedure applied by the IDA is applied here also. In relation to the actual provision of capital moneys at the moment I referred in my statement to the fact that negotiations were now in progress on the issue of involvement of other people in this company.

Other Senators have referred to other aspects of this industry in Scariff and have sought information on this option. I ask them not to press this point at the moment because these negotiations are at a fairly delicate stage and the less said about them at the moment the better. My Department and the officials therein are now getting down to a very serious stage of negotiations. I hope that many of the ills referred to by Senators will be largely overcome if we can wrap up this deal which is now being negotiated.

Senator Lanigan referred to exports, the energy question and the problem of living from day to day. The third point mentioned by the Senator can be covered by what I have said in relation to negotiations going on at the moment. I agree that they are living from day to day at the moment but, hopefully, this will end shortly. In relation to exports, exports arose simply because we did not have any outlet for the use of the volume of that kind of product coming on the market. This, I hope, will now be resolved very shortly.

Senator Ferris referred to the advent of Medford in Clonmel in his constituency which will use up a large volume of that kind of timber which we have been exporting up to now very cheaply, I agree, simply because we had no other outlet for it. The new factory, which is a very large outlet, will use up any available timber in this respect.

The other area referred to by the Senator concerns energy. Senator Robinson also referred to energy. The question of energy is being looked at at the moment. I agree that the use of oil in the timber industry sounds somewhat contradictory but there is a big question mark hanging over the use of thinnings, for example, as a source of energy. The profitability of that is being investigated at the moment. I can tell the House that to some extent alternative sources will be used from now on in Scariff and hopefully it will cut down on the overall cost of energy, which is pretty staggering at the moment. Indeed, it is a contributory factor to some of the problems there. At the moment I understand CPN are using waste material there to cut down on this overall energy cost.

Senator Robinson made the point that we should take an overall look at the whole industry to see how we can ensure its viability. She mentioned matters like imports, our competitiveness, energy costs and so on. These are all factors which go into the melting pot in establishing the viability or indeed the non-viability of any particular industry. It can be said that there is no reason why this type of industry and, indeed, specifically the Scariff industry, should not be viable. It is now the only one of its type left in the country. It is established that there is a market for this type of product to the tune of roughly £20 million per annum of which Scariff enjoys roughly one-third at the moment.

This is a large market in value and there is no reason why Scariff could not increase its share of that market through becoming, first of all, more competitive in the market place and, secondly, producing a product which would be more attractive to the people using the product. Part of the problem up to now has been that due in some cases to the use of obsolete plants, the quality of the product has not been what it might have been and, indeed, has not been what many people need or want in the industry. They are, however, producing a product which in many cases is very badly needed, that is a low cost product. In the case of agriculture it is used broadly indeed. The people in this area of usage would prefer a lower quality type of product because of the kind of usage for which they need it. They are using that and Scariff is providing it. In the up-market area Scariff has taken note of the competition it is facing.

Senator Robinson asked where these imports are coming from. The bulk of the imports are coming from within the EEC, indeed mostly from the UK through the North and because of trading agreements and so on it is very difficult to apply any kind of restrictive practice in that respect to imports of this type of product. The bottom line in this, as I see it, is that we should try to ensure that Scariff become more competitive and improve on the quality of the product they are producing to take on all comers in the open market. Hopefully, we are moving in the right direction in that respect.

Senator Ferris referred to the new company in Clonmel. It will provide medium density fibre board. I am also informed that there will be sufficient pulp wood for Medite and chipboard to ensure their full capacity and, hopefully, the establishment of new employment. I would also like to point out to Senator Ferris that the company, CPL, were formed in 1981. Thankfully, they do not owe money at present. They started off with a clean sheet in 1981 and with the help of my predecessors and myself they are keeping their head above water.

Senator O'Leary mentioned the oil crisis. It has had an adverse effect on an industry which is very energy-orientated because of the large amount of energy it uses. He mentioned Scandinavia. Of course, Scandinavia is somewhat different from us and it is difficult to compare like with like. The production end of the industry in Scandinavia is privately owned and the processing end is State run. I assure Senators that at the moment, despite the fact that we have had a very good track record in this country in re-afforestation, my Department, the Minister of State and myself are having an in-depth look at where we stand in relation to the area of land being planted, the areas being acquired for plantation and so on. Difficulties have been arising, especially in recent years, in the area of acquisition. We are looking very carefully at new and possibly better, more efficient and more expeditious ways of getting our hands on more suitable land for planting. There are various permutations and combinations between public and private that can be applied. Hopefully, a more forward-looking approach will be forthcoming in the near future. I do not mean to say that we have failed in the past. We must move with the times and the availability of land. That is being done.

On the question of dumping mentioned by Senator O'Leary, dumping in the looser sense in many cases is not dumping. It is downright competitiveness that is allowing great volumes of timber to come on our market. Again, we are getting back to being more competitive and more efficient.

Senator Hourigan mentioned structures. I have referred to what we are doing at present in relation to basic structures, acquisition, plantation and so on. Those matters are being reviewed and I hope that we will have more details on those aspects in the near future. We are talking about an industry that can and, indeed, should be viable. At present it gives direct employment to roughly 200 people in Scariff. From an employment point of view, we are talking about roughly £1.5 million in wages alone in an area which, as Senator Honan said, is an area in need of this kind of employment content. We are also talking about a further 100 people indirectly involved on contract, that is haulage, people employed in the forests and so on. I feel that if we apply the right kind of medicine now our patient can become very healthy and can prosper in the future.

Finally, I want to refer to negotiations at present going on. If these negotiations come to a fruitful conclusion I have no doubt that the future of Scariff's chipboard industry will be assured and that we can get into the market with a first-class product. I am sure that my Department's officials will have the blessing of this House in the furtherance of their present negotiations. Go raibh míle maith agaibh.

Question put and agreed to.