Seanad Éireann debate -
Thursday, 12 Nov 1987

Vol. 117 No. 13

Shipping Investment Grants Bill, 1987 [Certified Money Bill]: Second Stage.

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

Minister of State at the Department of the Marine (Mr. P. Gallagher)

The purpose of the Bill is to provide a statutory basis for a scheme of investment grants for ships. Under the proposed scheme, grants of up to 25 per cent may be paid to Irish shipowners in respect of approved capital expenditure incurred in the purchase of new ships or second-hand ships which are not more than seven years old.

In 1985, the Committee on Strategic Shipping Requirements was established to carry out a review of the country's strategic shipping needs. In its report, the committee concluded that there was an overwhelming case on strategic grounds for the provision of incentives to encourage the maintenance and development of the Irish merchant fleet.

The Committee recommended, inter alia, that the appropriate Departments consider what measures could be introduced to provide an effective stimulus to existing Irish shipowners and to encourage new investment in the industry. A package of incentives, including the grants scheme for which this Bill provides a statutory basis, was announced earlier this year. In addition to the grant scheme fiscal incentives were introduced under the 1987 Finance Act. The corporation tax rate payable by shipping companies has been reduced from 50 per cent to 10 per cent. This will allow shipowners to channel profits into the expansion and development of their services. Shipping project which have been deemed eligible for grant aid will have access to the business expansion scheme under which private investment in designated projects is allowable against tax liabilities. The interest shown to date in this regard has indicated that this could become an important source of finance for the industry. In addition, the way is now open for shipowners to approach the National Development Corporation for investment support in projects which are likely to yield a satisfactory return.

These incentives, together with the Bill now before us, should be seen as part of an overall policy of support for the Irish merchant shipping industry. The Bill is designed to provide a stimulus to Irish shipowners to acquire additional tonnage in the face of a worldwide recession and highly competitive conditions within the shipping industry.

In the past decade we have witnessed a significant reduction in the size of both the EC and OECD's share of the world fleet. OECD member countries, which include the EC member states, have pursued a policy based on the principle of free circulation of shipping in conditions of fair competition. On the other hand, some countries through unilateral or bilateral agreements have excluded, either partially or wholly, the shipping from third countries from their trades.

Irish Governments have chosen to promote a policy of full commercial freedom of shipping on the principle that, as an island State, it best serves Irish economic interests. However, positive measures are now required so as to ensure that ships on the Irish register will not move away from the Irish flag to more accommodating administrations. This would have serious strategic and economic consequences for the country as a whole as well as for our exporters who would find themselves in an extremely vulnerable position, despite efforts in the past to increase the share of our trade carried in Irish ships, the proportion is still less than 20 per cent of total trade.

At present, partly because of the recession which I mentioned, a considerable supply of good quality secondhand ships in the five to seven year range has come on the market. The provision of grants for vessels of this type will enable Irish shipowners to avail of the opportunity to acquire additional good quality ships at reasonable prices.

The proposed grants scheme will have a number of restrictions which are intended to ensure that the object of the exercise, that is, the expansion of the Irish fleet, is achieved. Grants may only be payable to individuals who are both citizens of and resident in the State, or to bodies corporate which are incorporated in the State, or to partnerships whose members are qualifying individuals or bodies corporate.

Grants may only be paid in respect of ships which are registered in the State and which are in excess of 1,000 tons deadweight. Since the scheme is aimed solely at the merchant shipping industry, fishing vessels, tugs, dredgers or offshore supply vessels are excluded from its application. In addition, the grant-aiding of the same vessel more than once is prohibited.

Additional conditions may be imposed with the concurrence of the Minister for Finance so as to ensure that grant-aided vessels are employed in the applicant's business and will continue to be of practical benefit to the economy as part of the national fleet. The Bill also provides for repayment of grants, in part or in full, in the event that the vessel ceases, within a specified time, through loss, transfer or other disposal, to fulfil the purposes which rendered it eligible for aid.

As regards the question of loss, I should perhaps make it clear that all vessels which are grant-aided will be required to be insured to the extent that compensation payable will meet full replacement costs. This will safeguard the State's investment as well as the ship-owner's. I would add that under section 6(2) of the Bill the discretionary powers available to the Minister are sufficiently broad to deal with the problems which might arise in the event of a grand-aided vessel being lost. It should be remembered that the conditions of the scheme, including the repayment in certain circumstances, are designed to ensure that grant-aided vessels will make real contributions to our shipping industry.

The Bill includes provisions in relation to offences and penalties for contravention of the Act, including the giving of false information, failure to comply with the administrative conditions and fraudulent application for grants. Further provisions empower authorised persons to enter and inspect ships or premises in connection with the administration of the scheme.

The scheme will have retrospective effect to 1 April 1987. Following the announcement earlier this year of the decision in principle to introduce the scheme, certain Irish shipowners undertook investment in anticipation of its early implementation. In giving this legislation retrospective effect, eligible ships purchased since 1 April may qualify for grant-aid.

In framing the terms of the scheme, employment has been a central consideration. The benefits in terms of jobs created will be a crucial factor in deciding on which projects will receive grant-aid. Inquirers have been left in no doubt that they will have to come through on jobs for Irish personnel and the same will apply to formal applicants. Grantees will have to comply with the manning regulations for registry which require Irish certificates of competency.

The cost of the scheme, subject to an aggregate amount of £7.5 million, will depend on the response of the industry. There is, however, strong indication that shipowners will not be slow to seize the opportunities which the scheme affords. It is anticipated that approximately £500,000 will be paid in grant-aid during 1987. Subject to budgetary constraints, it is expected that at least £1.03 million will be available in the first full year of the scheme's operation in 1988.

The Government, in creating the Department of the Marine, have made clear their commitment to the development of our marine resources. As the first legislation to be introduced under the aegis of the new Department this Bill represents a milestone in its brief history. The Shipping Investment Grants Bill is a progressive measure which it is hoped will provide a much needed boost for the Irish shipping industry.

This country depends heavily on its rising level of exports and upon the importation of vital raw materials for its industry. As a consequence, our economic prosperity relies largely on the shipping services available. It makes sense in that case that we should endeavour to ensure that as much of our trade as possible is carried in Irish-owned ships. The grant scheme for which this Bill provides a statutory basis, together with the fiscal incentives mentioned earlier, will make a significant contribution towards the achievement of this objective.

I recommend the Bill to the House.

Mr. McCormack

I welcome the Minister of State, Deputy Gallagher, to the House to take this Bill. The purpose of the Bill is to provide a grant scheme to maintain and develop an Irish merchant shipping fleet for economic reasons and this is particularly necessary in the wake of the Irish Shipping liquidation. If there is one good thing which the liquidation of Irish Shipping did, it was that it led to a review of shipping policy. My colleague in the Dáil, Deputy Mitchell, as Minister for Communications, immediately set up a committee on strategic shipping requirements to investigate and report on current and future shipping needs. The Bill before us now and part of the Finance Act, 1987, reducing corporation profit tax on shipping to 10 per cent are a direct result of the proposals of that committee.

This Bill is largely the same as Deputy Mitchell's Bill. It is the same Bill with small alterations. The age of ships has been extended from five years to seven years and I welcome that. In peace time it is sometimes hard to realise the importance of the strategic fleet particularly for essential supplies. However, we must realise that over 90 per cent of our merchandise trade is carried out by sea and 80 per cent of this is done by foreign shipowners. Persistent and current problems in shipping worldwide have made it difficult for shipping in recent years. Despite those difficulties I believe that if our industry here could compete on equal footing with its main competitors, then the relative advantage which we as an island people with long tradition in maritime trading have, will ensure us an adequate share of the international shipping market, irrespective of conditions prevailing there.

The Irish shipping industry has tremendous potential which I am confident will be realised to the benefit of our economy and our citizens. The shipping industry worldwide is still reeling from the worst depression in 40 years. Despite intensified voluntary reductions in tonnage, the huge surplus in all shipping markets has led to a continued excess of supply over demand, resulting in artificially low freight rates. Recent years in particular have seen heavy losses by shipowners, bankruptcy of shipping companies, date rescheduling, deferred delivery on used ships and more and more ships being laid up.

Despite all this there is still considerable over-capacity in the industry which will persist for some time. Within this overall picture of surplus capacity the European Community share of world tonnage continues to decline in relation to other fleets. Most member states have experienced a severe reduction in fleet size and are currently reviewing their maritime policies, both individually and collectively, as the Community works towards a maritime policy.

We must compliment our own small private shipping sector which has shown great resilience in the face of worldwide depression. However, recent low profitability has threatened the industry's very survival and prevented expansion. I am, therefore, pleased to welcome this Bill which, subject to certain conditions, will allow grant-aid up to 25 per cent for the purchase of new or secondhand ships by Irish shipowners from 1 April this year. The good news is that at least five vessels are awaiting passage of this legislation to obtain the benefits, I sincerely hope that the list will grow.

While £1.5 million has been provided this year for grants, the recently published Estimates for next year show a reduction to just over £1 million. In section 2 (3), the amount of grant made available by the Minister shall not exceed an aggregate of £7.5 million. I am a bit concerned about that and I am not clear on how this £7.5 million will be allocated. I would like clarification of that from the Minister because if this year we allocate £1.5 million and if next year we reduce it to £1 million and we continue on reducing it by approximately one-third or 33 per cent every year, we would never spend the £7.5 million. I am not clear on how it is proposed to get to the figure of £7.5 million. We could continue, for example, reducing it by a third of the Estimate provided for that every year and after about 20 to 21 years, according to my arithmetic, we would be down at an allocation of hundreds of pounds. How is it proposed to reach the figure if we only provide £1.5 million this year and £1 million next year?

I would like to draw some other matters to the Minister's attention. My first concerns cross-reference from the Finance Act, 1987, to this Bill, section 8 (a). This section deals with qualification of shipping for the business expansion scheme, that it is a designated industry and qualifying for 10 per cent corporation tax. One of the conditions for such a qualification, according to this section, is that:

It shall include a certificate by the Minister for the Marine certifying that the purchase of a ship was, is, or would be eligible to be grant-aided under a statutory scheme of assistance for the purpose of ships administered by the Department of the Marine.

In other words, it appears that to be eligible for inclusion in the business expansion scheme the ship has to be eligible for grant-aid under this Shipping Investment Bill and to be eligible under the terms of the Bill before us today a ship has got to be less than seven years old at the date of its purchase.

The Minister said there were many good, second-hand ships from five to seven years old coming on the market. That may or may not be so but I believe the seven year limit on second-hand ships for the purpose of this Bill is correct but I have to reconcile that with a seven year limit for the purposes of the business expansion scheme. The reason for this, contrary to what the Minister said, is that excellent, second-hand ships, often up to ten years old are bought, for example, from the Dutch and Germans. Their ships do not come on the market until they are at least eight years old and that is in order to comply with grant conditions in these countries. Perhaps the Minister will clarify in his reply how we might get over that crux. This dilemma caused by the requirement that for the business expansion scheme a ship must be eligible for a grant under the Shipping Investment Bill must be clarified. Perhaps this could be more properly corrected by an amendment in next year's Finance Bill and if that is so I will await the Minister's response.

I would like the Minister to clarify those points I have raised. May I ask the Minister if parts of the shipping grants included in the Finance Act work in conjunction with this Bill? Of major importance to me in the Minister's reply would be information as to what is the period of time over which the £7.5 million will be paid out in view of my observations on the Estimates of about £1.5 million this year and £1 million next year. Would that go on indefinitely?

Before I conclude I wish to take this opportunity to thank my colleague, Deputy Mitchell, for his early work in assembling this Bill thus ensuring that it came before the Houses of the Oireachtas.

Mr. Fitzgerald

First, I would like to welcome to the House the Minister of State at the Department of the Marine. This is my first opportunity to welcome him. I also welcome the Bill. To go back briefly in time, Irish Shipping was founded after the Second World War. It was founded because we had learned by our mistakes of the past. An island people just cannot do without their own boats to transport essential goods into this country in times of war and also to export our own goods. It was unfortunate, a few years ago, that Irish Shipping went into liquidation and it was unfortunate in the way it was done at the time because it is my belief that Ireland's name was possibly smeared slightly throughout the world due to the manner in which it was done.

Nevertheless, that is behind us and there is now a positive effort to get Irish people or companies under Irish management, citizens of this State, to invest and make an investment in cargo boats, new or secondhand. There is a golden opportunity here with the back-up of the Government in the provision of grants up to 25 per cent. These grants are payable for new or secondhand boats. As a fisherman who has seen a great amount of the sea, and who has watched cargo boats go up and down our coast, I saw very few of these cargo boats carrying Irish names or being registered in Ireland. It was interesting to learn from what the Minister said that despite efforts to increase the share of our trade carried by Irish ships the proportion is still less than 20 per cent.

Ireland, as an island, has a history of association with the sea and ships. There must be great room for improvement in this area. If I were to complain about the Bill, which I welcome, I might say that it possibly does not go far enough. Perhaps in view of the amount of capital to buy some of these boats the Government should consider at another time a loan of some type to help out in buying them.

We are nearly solely dependent at this point in time on ships that are owned by companies and people from outside this country and if there was a crisis of some nature, like war, we would be basically cut off. The amount of goods being transported by sea in and out of this country is huge and proper investment in a proper shipping fleet is most welcome at this time. There is a great potential there and I am sure that businessmen who are already, in a small way, owners of cargo vessels will jump to the opportunity provided by this Bill. We do need the additional investment in the industry. There is, of course another aspect to it. Irish owned ships will carry Irish crews and there is this employment factor also.

Perhaps the Minister could say if the Government have in mind making finance available possibly on short term loan to help out. The 25 per cent is a most welcome and generous grant but the provision of the other 75 per cent might prove difficult. Perhaps the Government would look again at this, seeing that the industry is in its infancy so that there would be an opportunity for starting off and money would be more freely available for these ships.

I know that a boat of 1,000 tons is a very small boat but if we are to get the full potential out of the sea and the cargoes which can be transported on it, we must consider the amount of small ports around our coast which in the past accommodated boats of just less than 1,000 tons. These would be nearly border line cases. I do not want to be parochial about it but in my own town boats of 150 ft. to 200 ft. which are relatively small have been coming in there over the years with fertiliser, timber and coal. To the best of my knowledge their tonnage would be somewhere round 700 or 800 tons. There must be a number of small ports similar to Dingle around our coast which could still do business by sea in isolated places like Dingle. Only a year ago, fish was being exported out of Dingle again in boats of under 1,000 tons. It is only a small thing but perhaps the Minister would comment on it and also on the provision of finance by way of loan.

I welcome this Bill wholeheartedly because we have been out on a limb since Irish Shipping went into liquidation. I felt at the time it was a disgrace because of the way it was done. This Bill must surely be welcomed right across the board by everybody.

Minister of State at the Department of the Marine (Mr. P. Gallagher)

Ar dtús, ba mhaith liom mo bhuíochas a ghabháil leis na Seanadóirí McCormack agus Fitzgerald as ucht teacht isteach anseo inniu agus a thaispeáint dúinn an oiread suime atá acu san mBille seo. Ba mhaith liom mo bhuíochas a ghabhaíl leis an mbeirt acu as ucht an fáiltiú a chuireadh roimh an mBille seo.

I would like to thank both Senator McCormack and Senator Fitzgerald for their wholehearted welcome. Of course all have reservations and in the course of my reply I hope to deal with those. I would like to thank them for their contributions and for their particular interest in this Shipping Investment Grants Bill. I would like to thank them for the encouraging and supportive contributions they made to the debate on this very important legislation. Shipping services represent an area with huge potential for development and this Bill is progressive legislation designed to exploit that potential.

At present less than 20 per cent of our total trade is carried on Irish registered vessels given that 95 per cent of our trade is seaborne and it is clear that there is scope for substantial expansion in domestic shipping services. An expansion in the quality and capacity of our national shipping fleet would have significant and beneficial effects in terms of employment and of import substitution. While we tend to think of import substitution in terms of manufactured goods, over the past number of years the importance of service industries, such as shipping, has increased and it is vital that where possible the use of domestic carriers is maximised. I am sure that both our exporters and those engaged in the importation of vital raw materials will not now be slow to realise the significant contribution they can make in this regard.

The world recession in shipping has reduced employment opportunities for seafarers in all countries and for that reason it is the wish of the Government that the grants scheme should yield significant benefits in this area. As I emphasised when introducing the Bill, the number of jobs which eligible projects will create will be a basic consideration in dealing with projects receiving grant aid.

The combined effects of the grants scheme and the fiscal incentives introduced under this year's Finance Act create a more favourable environment for shipowners. The development and expansion of our shipping services will mean that the industry can sustain a higher level of employment, thereby ensuring that we will continue to have at our disposal the traditional seafaring skills so vital to an island State.

The £7.5 million which will be made available represents a potential of £30 million investment in the industry. This will provide the necessary stimulus for further investment and will help to secure our basic strategic shipping needs.

Senator McCormack referred to the £1.03 million available this year and to the question of the £7.5 million available overall. It was absolutely necessary to put a ceiling on this. Of course the ceiling may be changed at a later stage if we find that necessary but it is important to have a ceiling and not have the sort of situation that arose last year and prior to that in regard to the introduction of home improvement grants without any ceiling. If that were to happen in this case, it could be so open ended as to leave us with a fleet much greater than the capacity we would require. It is accepted, from a financial and monetary point of view, that we have to have a ceiling.

Senator McCormack referred also to the business expansion scheme and the access linked to grant eligibility. If one is to avail of the business expansion scheme one does not have to have been paid a grant. As long as one is eligible for a grant, one can avail of the business expansion scheme. I was pleased that Senator McCormack referred to and accepted the seven year period rather than a longer one which was suggested by some Members of the other House. That is an increase on the five years which was intended previously. However, we will ask the Minister for Finance to consider a 12 year period for the business expansion scheme but not for the grant aid. However, to avail of the business expansion scheme we will have to vet applications and our Department will have to give approval before they can be considered for the business expansion scheme. The Senator's comments will be taken very seriously and will be taken into account when framing the Finance Bill for 1988.

Senator McCormack referred also to the reduction in the allocation. I have already touched on that. The timescale for grant payments under the scheme is open-ended to the ceiling of £7.5 million and it will be available subject to budgetary constraints. I would like to think that there would be much more available but all Departments must accept that we have serious financial problems, not necessarily all of our own doing, but the problems are there and we must now try to rectify and resolve them. Moneys will be available subject to budgetary constraints. The £7.5 million of course represents a total investment of £30 million.

Senator Fitzgerald referred to the question of loans. The financial institutions should look very favourably at any application which is vetted by our Department and I have already pointed out that moneys will be available from the NDC. I believe that moneys will be forthcoming from them and, indeed, from other financial institutions. There should not be an onus on the State to provide loans.

The point raised by Senator Fitzgerald in relation to the limit of 1,000 dead tons varies somewhat from the previous Act which had a lower limit of some 100 tons. But the scheme is aimed at cargo-carrying vessels and of course the dead weight tonnage is less than the gross tonnage. Coastal trading is not very important in strategic terms.

As Minister of State at the Department of the Marine, I would like to suggest to those who may be applying that this Department will be the nucleus of the industry and will be depending on the fishing industry but we do not have a reefer boat. We are shipping out by way of refrigerated containers from the west and all other areas to all parts of Europe and even further afield. Those involved in the industry and, indeed, those who want to become involved in the shipping industry should look at the question of a reefer container.

In relation to the seven year age limit, we should note that ships built after May 1980, when the Safety of Life at Sea Convention came into force, were constructed in accordance with international safety standards adopted under that Convention. Any ships we would be grant aiding would have been built in accordance with the standards under that Convention. Vessels up to seven years old comply with these standards and are consequently more desirable additions to our fleet.

I hope I have answered the questions posed by the Senators. If there is any further information I can give I will certainly do so on Committee Stage.

Very briefly, I would like to summarise and to refer to the principal benefits to the economy of the shipping incentives. I am confident that the package of incentives will result in benefits to the economy. The strategic fleet would be increased in line with the recommendations of the Committee on Strategic Shipping Requirements to approximately 158,000 dead weight tons. The income earned by the expanded fleet would result in a net balance of payments, improvements in foreign earnings and important import substitution which I referred to earlier. Employment prospects for seamen and shore-based personnel would be improved.

The necessary marine training facilities including access to sea time experience will continue to be available to seagoing cadets, thereby ensuring the continuation in Ireland of the necessary marine skills for the future. The shipping industry would receive a stimulus to further expansion of both the size and scope of their services.

A Chathaoirligh, arís gabhaim mo bhuíochas leis na Seanadóirí as ucht an fáilte a chuir siad roimh an mBille seo agus mar atá a fhios acu tá an Bille tríd an Dáil anois agus tá súil agam, roimh an tráthnóna go mbeidh sé tríd an Teach seo ionas go mbeimid ábalta cuidiú leo siúd a bhfuil iarratais istigh acu agus go mbeimid ábalta an cuidiú sin a chur ar fáil roimh dheireadh na bliana seo.

Mr. McCormack

Gabh mo leithscéal, an feidir liom ceist a chur ar an Aire?

Acting Chairman

It is not usual but the Senator did ask for clarification.

Mr. McCormack

I did not even get it from the Minister's reply. I understand that there had to be a maximum grant. I was not referring to that at all. I have no quibble with the maximum grant. I know it is subject to budgetary restraints but if we continue with £1.5 million this year and £1 million next year, according to my sums if you keep reducing it by one-third in the Estimates every year it would take 20 years or more to spend £7.5 million. That would be my concern. I hope I interpret the Minister correctly when I say people can still qualify for the business expansion scheme provided the applicant is qualified, not necessarily the age of the ship. It does not necessarily have to have got a grant under this Bill to qualify for the business expansion scheme. Does that mean the ship could be more than seven years old, and the person would not get a grant but would qualify for the business expansion scheme?

Mr. P. Gallagher

I am sorry if I did not make myself clear enough for Senator McCormack. The first point I would like to make is that mathematics are factual and not a matter of opinion, the Senator and I cannot disagree. If we have a reduction of 10 per cent each year, the Senator's mathematics are right but his mathematics is based on assumptions. If the logic of what he is saying were reversed, that there is £500,000 this year and £1.03 million next year, it would imply that we were progressing each year rather than regressing. We could argue about that all day. We are giving as much money as possible subject to budgetary controls, I cannot dispute the mathematics of it with the Senator but I think he will accept my point that it is a hypothetical question. We will just have to wait and see. The commitment of the Government is there. The commitment of the new Department of the Marine is there. The necessity to have a strategic fleet is there. I think Senators will agree that we wasted no time bringing this Bill before the House. I could agree with the Senator's mathematics but I certainly could not agree with his assumptions.

My second point is in regard to the business expansion scheme. To qualify for the business expansion scheme — I am glad the Senator raised the question if there is any ambiguity about this — one applies to our Department. The application is scrutinised and processed to the full there. If one is eligible for grant-aid and the applicant and the particular boat fulfil all of the conditions, the applicant would qualify for the business expansion scheme. The age would still be seven years as of now. The point raised by the Senator about an increase on that will be brought to the attention of the Minister for Finance, in that business expansion scheme incentives might be made available for boats between seven and, for example, ten and 12 years old.

Mr. McCormack

I am glad to have had the opportunity to have that clarified.

Question put and agreed to.

Agreed to take remaining Stages today.