Irish Steel is based at Haulbowline, County Cork, and produces mainly structural steel sections from ferrous scrap. While the plant may be comparatively small when compared to the large integrated steel mills of Europe, it is an important feature of the industrial infrastructure of this country, and Cork in particular. It is also a significant employer in the Cork area with an employment level of 633 people, approximately.
Following years of loss making the company have returned profits, albeit modest, for the past two financial years. Turnover in the year ended 30 June 1990 was £88.7 million, of which 87 per cent was attributable to export sales. This almost total dependence on the export market leaves the company open to the fierce competition of the European steel market which for many years was dogged by over-capacity and low productivity.
The restructuring of the industry undertaken during the eighties is almost complete throughout the Community and has brought supply and demand more into line. However, the steel industry has always been subject to cyclical fluctuations and, after four years of growth, 1991 is expected to feature a downturn in production and demand throughout the entire OECD area. Prices are depressed at present and while there are indications that prices may have bottomed out the future still remains uncertain. The recession in world markets has an almost immediate impact on trade in Irish Steel product range which is predominantly construction-orientated and, therefore, be the first to feel the chill winds of recession. The market for heavy sections in the UK and in France has shown a sharp decline and import pressure on the Community market which had been fairly low in the last few years is now becoming stronger. The crisis in the Gulf has also exacerbated the effects of this downturn. However, it is hoped that the negative effects on economic activity arising from the recent hostilities in the Gulf will not be a long term inhibiting factor on economic growth.
Over the years, Irish Steel Limited have received total Government support amounting to roughly £190 million made up of equity, grants, repayable advances and State guarantees. Of this, £143 million has been advanced since 1982 and cumulative losses as at 30 June 1990 amounted to £96.7 million. Needless to say, company losses and State advances of this magnitude were not sustainable and the realism of that situation was reinforced in 1985 by the adoption at European Community level of rules prohibiting State aid for European steel manufacturers.
It was against this background that the search for a strong external partner for the company was initiated in 1985 and intensified in 1988. This resulted in the identification of possible partners with whom negotiations were opened. Arising from the negotiations that have taken place with these parties, I have to say that it has not been possible, so far, to conclude an agreement for the sale of the company. In the case of one of the parties, it will be recalled that the main promoter involved, Dr. Willie Korf, tragically died in an air accident in November 1990. There has been no substantial development since his death.
I have to say that there is no change in Government policy in relation to Irish Steel. The Government remain convinced that the interests of Irish Steel and of their workforce, especially in the longer term, will be best served by association with a strong external partner. However, I have never taken the view that a sale should be achieved at all costs. I have always been concerned that all options be thoroughly examined and assessed so that in the final analysis the option chosen is the best one for the company, for the workforce and for the State.
In the meantime, the company will continue to be run in a way that will endeavour to help their long term future. They are taking all necessary steps to improve competitiveness in a difficult trading environment internationally. They are proposing a package of rationalisation measures covering reductions in costs, including payroll costs, more flexible working arrangements in line with best practice and more appropriate pay arrangements in large part allied to performance.
A redundancy package involving about 100 voluntary redundancies is an integral part of these rationalisation measures. Obviously, there will be full consultation between the company and trade unions in relation to these proposals.
I want to assure the Senator and the House that the search for a suitable partner for Irish Steel continues and that there is no question of a sale proceeding unless the Government are fully satisfied that that is the best option for the company, their workforce and the Irish taxpayer.
Until such a sale can take place, it will be up to the company, their management and workforce, with the support and encouragement of Government, to continue to operate on a basis that will enhance its long term viability.
In view of the query raised by the Senator about the management of the company, I think it only right to say that I have full confidence in the present management and board of Irish Steel. They have succeeded in turning around the fortunes of the company in the past two years into a profit making situation. Even though the profits are minute, at least it is very much better than the long succession of losses which were a feature of this company for many years. I believe the management are endeavouring to come to grips with the problems that clearly exist there, as they do throughout the whole European steel industry, in an efficient and workmanlike way.
The Senator described the position in regard to this company as stop-go. He said that the Government's position was unclear and that he wanted it clarified today. I hope I have clarified it but in case there is any doubt about it, the Government's position is, as it has been for quite some time, that they are anxious to sell this company as soon as they can beneficially do so. By beneficially I do not mean just in terms of the return of some small part of the money that is due to the Exchequer but beneficially from the point of view of the ongoing viability of the company and their retention on a long term basis of as many of the company's employees as possible. It would, of course, have been possible to sell this company to several buyers. There were six different offers made in all. The company could have been sold to any one of the bidders if we just wanted to sell it for the sake of selling it. I and the Government could have washed our hands of it but I was not prepared to do that unless I was as satisfied as I could reasonably be about the future and I was not satisfied with a number of the offers that were made.
I regret that I did not take a full note of what the Senator said in regard to proposals or, as he put it, an offer of the Korf organisation so I cannot go into each point he raised. I thought he was going to go into it afterwards in some more detail.
There are a few other comments I would like to make. The Senator mentioned the Korf organisation. In fact, the Korf organisation were a very small company with a small annual turnover. They had originally put forward certain proposals at the end of 1988 or at the beginning of 1989. After I assumed my present office I met the late Dr. Korf with a financier, who I believe was an American, who formed a major part of that offer at the time. I asked them a number of questions about the position and about what they intended. As a result of the meeting I had with them there was a major rethink and many of the proposals that had been put forward early in 1989 were withdrawn and the offer that had been made was very considerably amended. It caused me, among others, to wonder on what basis the original offer had been put forward if most of the principal features in it were subsequently withdrawn.
The Senator mentioned that a smelter would be built on the Shannon estuary. When I questioned the detail of that and asked for the projections in relation to it, I was informed that that was withdrawn and that there was no question of that going ahead. I asked to see the guarantees in respect of the car steel market in Germany which the Senator mentioned today. On finally getting those guarantees, as they were described at the time by Dr. Korf, I found that they were not in fact guarantees at all, rather they were letters from two or three automobile manufacturers saying that if the quality of steel that would be produced at Haulbowline were adequate and if the price were the same as or lower than the price for steel produced by anyone else and delivered to southern Germany, those manufacturers would be prepared to consider buying. I could not, by any stretch of the imagination, describe letters of that kind as guarantees of a market and they clearly were not. I think it was erroneous, therefore, of the company concerned to allege to people generally that they did have guarantees.
On the question of the payment to the Exchequer, that was subject to very heavy revision indeed and was, in fact, in the case of that company less attractive and, in many ways, significantly less attractive than some offers made by some others.
I do not think it appropriate for me at this stage to go into the question of the offer made by North Star because I do not think that would be fair to them — I have only referred to the Korf offer because it was raised here — except to say in general terms that North Star is a wholly owned subsidiary of a very large company, an American conglomerate, the annual turnover which I understand last year was in the region of 43,000 million dollars, making it one of the largest companies in the world, whose resources are literally almost endless. Therefore, it would be of considerably more interest to me — and I suggest, therefore, to the workforce at Haulbowline — than a very small company indeed who would have had extremely small resources. It would not be correct to say that the offer they made was derisory in any sense. They are a successful steel company, particularly in this field of small mills, producing this particular type of product. It is interesting to find that in their recent history in the United States they took over six companies of a roughly similar capacity to that of Irish Steel, all of which were loss-making, and turned all of them around.
In my discussions with them it was also of interest to me to discover that at least one of those companies had been the property of the late Dr. Korf but had been heavily loss-making. When they took it over they were able to transform it into a profitable company. It is entirely untrue to say that the board of Irish Steel supported the proposal from Dr. Korf. In fact, they left me in absolutely no doubt whatever, in a most unequivocal letter which the chairman wrote to me on behalf of the board, that they did not favour that proposal. They left me in no doubt whatsoever on that point.
So far as the present position is concerned, the Senator mentioned a company called Metallgesellschaft. Metallgesellschaft became involved at my suggestion last year when I thought that, if there were going to be a bid from Germany, I would prefer that it was from a large company with considerable resources. Before the tragic event of last November there was discussion then about the possibility of a joint venture. The question of a joint venture does not now arise as a result of what unfortunately happened last November. I would, of course, welcome a bid from Metallgesellschaft themselves and the possibility of that may arise in the future. There are other interested parties also.
In the meantime the obvious thing for both the Government and the company to do is to try to make the company as efficient as possible, thereby to secure its future in the short term as a State-owned company and in the medium and longer-term as a company which hopefully will be purchased by a major operator in the steel business who would be prepared to make whatever further investments are necessary to ensure that this plant has a long term future. If I were interested in a sale for the sake of simply a sale I could long since have disposed of this company, but I am perfectly satisfied that that would not have been in the best interests of the company and of its workforce and, accordingly, of the State. I will be happy to sell as soon as I believe that we have a satisfactory situation in which it would be wise to sell and in which it would be in everybody's interest to sell.
