I was very heartened by the welcome this Bill received in the other House. While there were, naturally, differences of view on certain aspects, there was general agreement that the Government were doing the right thing in establishing a new commercial forestry company.
Forestry is part of our heritage and is one of our great national assets. Since the foundation of the State, successive Governments have pursued the aim of increased afforestation, to counter the destruction and neglect of previous eras and to provide self-sufficiency in an asset which is the raw material for so many industries. While it was not always possible to realise fully national forestry targets during this period, the important point is that all shades of political opinion recognised the importance of forestry as a major contributor to the well-being of this country. It is true to say that the earlier afforestation programmes set the seeds for future generations as, indeed, will our efforts to continue the work undertaken by our predecessors.
I hope I will not be accused of being partisan when I say that forestry development has received a major boost under the present Government which has targeted forestry as a primary developmental activity. A record national planting target of 11,000 hectares in 1987 was achieved. The target was increased further to 13,000 hectares in 1988 and this will also be met. In fact, I expect that total planting this year will reach 14,000 hectares, comprising 10,000 hectares of State planting and 4,000 hectares of private planting.
In addition to these targets, the Government's Programme for National Recovery set a target of increasing wood production in 1987 by 50,000 cubic metres to 1.25 million cubic metres. In fact, the targeted increases was doubled and a total of 1.3 million cubic metres was produced. This generated receipts of £19 million, an increase of 11 per cent over projections and 16 per cent greater than receipts in 1986. Receipts in 1987 were also an all-time record which I expect will be broken again this year when timber sales are expected to exceed £20 million.
The earlier period of Irish forestry was marked, because of the absence of significant private sector investment, by the necessity for substantial State intervention. While public forestry is likely to remain the predominant element in achieving national planting targets in the foreseeable future, the balance between it and private forestry has changed significantly in recent years. Private planting was a record 3,200 hectres in 1987, a tenfold increase over the corresponding 1983 level and, as I have said, I expect it to reach at least 4,000 hectares this year. I have recently launched three new initiatives on private forestry grants. The Western Package scheme, formerly aimed at the poorer areas in the west, has now been extended to all disadvantaged areas in the country. EC funding has been increased from 50 per cent to 70 per cent. A new farm forestry scheme has been launched, aimed at full time farmers, which increases the scope and level of grants available. The EC will reimburse the State 25 per cent of grant expenditure. A new compensatory allowance (headage payment) scheme will allow farmers, who are in receipt of headage payments in respect of livestock, to continue to receive such payments if they afforest part or all of their land. This scheme will be 50 per cent funded by the EC.
The availability of EC funding has been of considerable assistance to the Government in their initiatives to develop the private forestry sector. I hope I will not be accused of being churlish when I say that it is a source of disappointment to me that similar levels of EC funding have not to date been available for public forestry developments. Since we joined the Community in 1973, public forestry has received to date only some £8 million in direct EC grants as compared with an expenditure of about £500 million during that period.
There can be no doubt that both public and private forestry are essential elements in achieving national forestry targets and, as I have said, public forestry is likely to be the predominant partner for some time to come. The need for high national planting targets is obvious when one considers that only about 6 per cent of this country is afforested as compared with a Community average of some 24 per cent. Given the fact that Irish trees have the fastest growth rate in the Community, it is clear that sowing the seeds now through a sustained forestry development programme will reap the rewards in the years to come.
When I came into office, I quickly realised that we needed to increase substantially the level of EC funding for Irish forestry. I am glad to say that the major drive I initiated to this end has begun to bear fruit. In January last, I announced that we had been allocated a total of £8.1 million from the European Regional Development Fund for road building in State forests. This will finance about 55 per cent of the £15 million cost of constructing 358 km of new forest roads and the upgrading of 107 km in the three years 1986-1988. This is the first time that the ERDF has injected substantial resource to mainstream forestry activities.
In the latter part of last year, I visited Brussels and had important discussions on Irish forestry development with Vice-President Frans Andriessen. During these discussions, I invited him to visit Ireland and I am glad to say that he accepted this invitation and will come here next month. It was a source of considerable satisfaction to me that a forestry initiative resulted in a visit to Ireland by such an important Community personage.
While we have made progress on the EC front, we still have a long way to go before we can be satisfied with the level of Community funding support for Irish forestry. I intend to continue my efforts to ensure that such funding reflects the importance of forestry to this country and the major part it has to play on our economic development.
I mentioned earlier the role of successive Governments in the development of national forestry programmes. These investments are now beginning to come to fruition. As of now, about 50 per cent of Irish forests are producing saleable timber. Our forest estate has expanded from virtual extinction to its present size of nearly 350,000 hectares. Output from State forests will reach about 1.5 million cubic metres of timber in 1988. This will increase to two million cubic metres by 1993 and three million cubic metres by the turn of the century.
I think, therefore, that the signs now for Irish forestry are very positive. We also have a major advantage in our proximity to the large market of the United Kingdom, which imports more than 90 per cent of its timber requirements. The EC as a whole imports approximately 75 per cent of its requirements and, in fact, its timber import bill is second only to that for oil. The stage has thus been set for a major drive on export markets by Irish forestry in the years ahead. The plentiful home-produced timber resources will also provide the opportunity for downstream industries to capitalise on these markets.
I would be remiss if I did not pay a warm tribute to the staff of the Forest Service, both serving and retired, for their work in developing our State forest estate. Their efforts have in large measure contributed to the present situation where Irish forestry is now in a position to realise its potential. They deserve our thanks for the part they have played in our forestry development.
Hitherto, the Forest Service have operated as part of the Civil Service. In recent years in particular, there has been an increased emphasis on the need to exploit the full commercial potential of forestry and to operate it as a business. It has become increasingly obvious that a Civil Service structure was not the best way to achieve these objectives. The Government, therefore, have decided to establish a new commercial State-sponsored body to develop State forestry. The Bill before Senators, to which I now come, implements the Government's wishes in this regard.
Many Senators will undoubtedly have read this Bill with interest. I do not think it necessary, therefore, to go into each of its provisions in detail at this stage. These will in any event become clear as we consider the various sections of the Bill later. The best approach, I think, would be for me to outline generally the scope of the Bill and the broad purposes of its various sections.
The Bill is divided into three parts. The first part, comprising sections 1 to 8, is concerned with general provisions and I do not think there is a need to go into these further at this stage. Part II, which comprises sections 9 to 38, deals with the establishment and administration of the company. Essentially, these sections fall into six broad areas. Sections 11, 15 and 16 contain normal-type provisions in relation to the company's memorandum and articles of association. Similarly, section 10 and sections 17 to 23, inclusive, deal with the capital formation of the company, share issues and payment of dividends etc. Sections 24 to 29, inclusive, contain provisions in relation to the financing of the company borrowing, Exchequer funding of current and capital expenditure and so on. Sections 12 and 13 outline the objects and general duty of the company. Sections 30 and 31 deal with accounts, audits, and annual reports of the company. Sections 32 to 36, inclusive, contain provisions in relation to the company's directors, chief executive and staff. The remaining sections deal with the name of the company, section 9; establishment of annual sales programmes, section 14; by-laws, section 37, and general ministerial powers in relation to the company, section 38.
Part III, comprising sections 39 to 53, includes a number of transitional provisions applicable to the company. Again, it is convenient to divide these sections into broadly related categories. Sections 39 to 41, inclusive, deal with the transfer of land, other property, and rights and liabilities. Sections 43 and 44 contain provisions in relation to staff transferred from the Department of Energy to the company. Sections 47 to 49, inclusive, deal with claims by or against the company, legal proceedings and enforcement of judgments. Sections 50 to 52, inclusive, provide for the continuance of notices, licences, permissions, planning consultations and so on effected before vesting day.
The remaining sections deal with the position of the company in regard to rates and stamp duty, sections 46 and 42 respectively, power of Commissioners of Public Works to undertake work at the request of the company, section 45, and transitional financial provisions, section 53.
The First Schedule contains particulars of repeals of parts of certain enactments and the Second Schedule contains details of amendments of parts of the Forestry Act, 1946, mostly relating to penalties for tree felling offences. This, then, is a summary of the main provisions of the Bill. I would now like to comment in some detail on what the Government expect from the company and, in this context, to outline first the financial framework in which it will operate.
Forestry is, by its very nature, a long-term investment. The full returns on investment in forestry are not realised until a plantation is clearfelled at 40-50 years although there are, of course, intermediate stages when thinnings are sold. Even here, the normal pattern for conifer plantations is for thinnings to commence when the stand is about 20 years old.
Despite the progress which has been made in forestry in recent years, and it has been very real progress, the State's forest estate has not yet reached the stage where receipts from timber sales and other miscellaneous activities cover the cost of the Forest Service, £55.5 million gross in 1988. This is a fact of life. The new company, therefore, will not reach a cash break even position on its operations for some time to come. It is thus important that in the early years of its operations it receives substantial State financing and that a significant proportion of such financing be made available through share subscriptions to avoid the company being lumbered with interest charges which it would have difficulty in servicing if the predominant support instrument were loan financing.
The Bill, accordingly, reflects these needs. Section 26 provides that the Minister for Finance may provide funds to the company for capital works up to a limit of £100 million. Such funds may be made available either through subscription for shares in the company, Exchequer payable advances, or a combination of both. The actual amount and mix will be decided by the Government in the light of the development plans submitted by the company.
Under section 29, the Minister for Finance may make available to the company, during a period of four years from vesting day, grants up to an aggregate of £30 million for current expenditure. Section 27 provides that the Minister for Finance may provide up to £3 million for working capital, in return for its equal value in shares, and the company itself is empowered under section 24 to borrow up to a limit of £80 million. Such borowing may, under section 25, be guaranteed by the Minister for Finance.
The Bill, therefore, provides for an overall funding limit of £213 million for the company. This will be sufficient to finance the operations of the company over a period of about five years, such operations to include significant planting programmes by the company. I would emphasise that the figure of £213 million is a limit and that the actual funding to be made available to the company will depend on the particular circumstances prevailing and on its development plans and progress.
In my view, the funding provided for the company is not ungenerous. While it will probably be necessary to provide further financial support for it after the period indicated, I would expect this to be on a much lesser scale. In fact, it would be a serious illusion for the company if it saw the Exchequer as a constant source of financing. That most certainly will not be the case. We expect the company to stand on its own feet, to conduct its business in accordance with the requirements of the marketplace, and to reach profitability as quickly as possible. Freed from Civil Service constraints, its essenthat task will be to operate to strict commercial criteria and to exploit all available opportunities.
During the period covered in this Bill, it is my firm intention to adopt a very vigorous attitude to proposals for financial assistance submitted by the company. The company is in the very fortunate position in that substantial assets, financed through taxpayers' moneys, are being transferred to it without any obligation to repay any part of the expenditures incurred in their creation. For any company, this is a tremendous head start. While we do not want to cripple it with debts, we must also guard against an even worse situation in which the company is, in effect, relieved of the obligation to conduct its affairs on the basis of private sector efficiency, because we are too easy-going in the provision of State funds.
As I have just mentioned, the taxpayer has already invested substantial amounts in forestry and we now expect the company to put its inherited house in order and to provide substantial returns on this investment. I will conclude on this point by saying that, although there is provision for it in the Bill, I will critically examine any proposals for the guaranteeing of the company's loans. If it is necessary we will have to put up with it but I will be very anxious to avoid anything which might give the impression that the State has any responsibility for the financial outcome of the company's activities. We also intend to avail of the provisions of the Bill, for example section 38 to set financial targets for the company in consultation with it. These targets will not be mere formulation of words and numbers.
For the company to meet the goals we will set for it, its operations must reflect a number of crucial factors. In the first place, a commitment to commerciality must permeate all parts of its organisation. In the past, the development of forestry in this country was not always guided by strict commercial considerations and, as I have already said, a Civil Service structure is not the most conducive one for commercial operation. All that must now change. Freed from the constraints of the Civil Service, the company will have the necessary flexibility and freedom to conduct its business in a commercial way like any other private sector company. It will have no excuse to do otherwise and no excuses will be accepted.
Secondly, the company must operate in a cost effective and efficient manner. I mentioned earlier that the current development of our forest estate has a major influence on the break even date and that, because our trees are at a certain stage of growth, it will still take some time before profitability is reached. There is not much the company can do about that, but it can certainly do a lot in terms of reducing its operating costs. I expect it to do so and thus achieve a much earlier break even date than would have been the case if forestry had continued to be operated within a Civil Service structure.
I spoke earlier about the strengths of the forest service and indeed, that service has great strengths. Like any other organisation, however, it is also capable of improvement. It has been clear to me from my examination of forestry affairs both at headquarters and in the field that there is considerable scope for organisational reform, for the elimination of unwieldly and costly procedures, for the adoption of better practices in the forests, for the introduction of new arrangements which will reduce outgoings on purchases and increase income per unit of sales, and for the identification of the optimum utilisation of the land and other assets. There is a need in general for the creation of an entirely new culture in relation to forestry which will have less to do with outdated procedures and much more to do with running an efficient operation and giving the people of Ireland a better deal for their money.
In short, I expect the new company to have a fundamental look at forestry organisation, structures and practices and to identify the most efficient and cost effective way of conducting the business of forestry within a commercial environment.
An emphasis on management and performance must also be given the highest priority within the company. Standards of excellence must predominate. There should be no place for individuals or groupings who see the organisation as existing to fulfil their own particular purposes. On the contrary, all staff should see themselves united in a common goal — to achieve the purposes of the organisation. This will be the real test of an individual's performance within the company.
The company is indeed fortunate that many of the staff which will be transferred to it have long experience in the various aspects of forestry. This will undoubtedly be a great strength which will considerably help its development. At the same time, much of this strength would be dissipated and, indeed, could be counter-productive, if the staff concerned did not adjust quickly to the new tasks and different operational environment in which they will find themselves. I am fully confident that this will not happen. Indeed, I am glad to note that the staff have given their support to the objectives we have set for the company and I look forward to their continuing commitment in this respect. Bearing in mind that traditional constraints did not allow for sufficient attention to be paid to these things for a long time past, I am convinced that in the new situation very significant improvements will be effected in the near future.
I will, therefore, be throwing down the gauntlet to the chairman, the directors the chief executive and the management team as a whole to deliver the goods in accordance with the charter which I am asking the Oireachtas to provide for the company. I do not accept that this is just another semi-State board. I expect far more than that and if I do not get it I will give the board a very hard time. As I have mentioned, there are useful provisions in the Bill in regard to performance requirements and achievement of targets. We intend that the powers given in these respects to the Ministers for Energy and Finance will, in association with the financial provisions of the Bill, be used in such a fashion as to assist in bringing and about the radical changes that are necessary. While we will set the company difficult tasks, we are confident that it will meet these tasks and will fulfil our high hopes for it. Accordingly, I commend this Bill with confidence to the House and I look forward to a useful and constructive debate on it.