The primary purpose of this Bill is to provide for matters connected with the sale of the B & I Line plc to the Irish Continental Group plc (ICG).
The basic terms of the sale are that ICG will pay £8.5 million to the Minister for Finance in return for the entire issued share capital of B & I. This transaction will take place when all conditions relating to the sale of B & I have been completed.
The conditions to be met prior to the sale involve the Government removing accumulated bank and other debt from B & I's balance sheet. This amounts to £35 million. The Government may decide to do this either by injecting the requisite amount of additional share capital in the company to enable the debt to be paid off, as provided for in section 2 of the Bill, or also by assuming direct responsibility for part of the debt, as provided for in section 3.
Section 3 also provides that the aggregate amount arising under sections 2 and 3 will not exceed £36 million. This maximum amount includes a contingency figure of £1 million over and above the £35 million Exchequer investment envisaged to provide for any subsequent adjustment which may be required in exceptional circumstances.
The origins of this Bill extend back to March last year when the House was debating the B & I Line Bill, 1990, to provide further additional Exchequer funding for the company. During the course of the debate on that Bill, I announced my intention of carrying out a review of the future options for B & I. My main objective in doing this was to determine how soon the company's dependence on Exchequer financial support could be ended. At the same time, I wanted to take into account the strategic shipping needs of our importers and exporters, as well as our tourism industry. In the intervening period, a very significant amount of work has been carried out which is reflected in the Bill before the House.
Before proceeding further with the events leading up to the Bill, I believe it is appropriate to spend some time in reviewing the history of the State's financial involvement in the B & I.
The British and Irish Steampacket Company Limited, now the B & I Line plc. was acquired by the State from private interests in 1965 at a time of great technological changes in shipping and competition on cross channel routes. The main objective of the acquisition of the B & I was to maintain and improve services and to ensure competition in sea transport between Ireland the the UK. That objective is as valid today as it was then, but State ownership is no longer the only way to achieve it. B & I's main competitor, Sealink, was sold some years back by British Rail and has more recently been acquired by the Swedish based Stena group.
The B & I was mandated in 1965 to operate on strictly commercial lines. The company's core objective was to provide and develop a modern, efficient, profitable and national system of sea services to and from Ireland.
Notwithstanding the commercial mandate given to the company, the Minister for Finance, as shareholder, has been called on to make total Exchequer equity injections in the B & I of £106 million since its acquisition in 1965. Equity has been injected each year since 1976 for working capital purposes with £53 million of this alone being paid since 1985. Despite these costs, the company is still heavily dependent on Exchequer funding and will require further major investment or fleet replacement over the coming years.
To coincide with a substantial Exchequer equity injection in 1986, the board of the B and I implemented a major restructuring programme. This involved changed operating methods and staff reductions. The measures adopted by the company were not, however, sufficient to contain the deterioration in its financial position. The board of the B & I submitted in December 1986 further major rationalisation proposals to the then Minister for Communications. This was followed in February 1987 by a request from the board for additional equity from the Exchequer to enable the company to continue trading.
In May 1987, the Minister directed the board to submit to him as soon as possible a plan of action aimed at achieving a substantial reduction in the company's losses. As a result, the board embarked on a series of intensive negotiations with all of the unions concerned. On 11 December 1987, the board presented a plan of action to the Government which had "across the board" support from the company's workforce.
The Government noted the plan of action but did not commit themselves to the further substantial equity requirements envisaged over its term. Despite the achievements under the plan, these were never sufficient to remove the company's heavy debt and its ongoing reliance on Exchequer funding. Additional equity injections of £6.2 million, £4.8 million and £6 million were made by the Exchequer in the years 1988, 1989 and 1990, respectively.
In view of the examination of the future options for the B & I which had been initiated earlier in the year, the Government decided on 11 December, 1990 not to approve the injection of further equity into the company in 1991. As an alternative, it was decided that the Government would guarantee the minimum borrowing required to enable the company to continue trading and thus avoid liquidation. The amount of B & I loans subject to Government guarantees stood at £14.7 million on 31 December 1990. Since then, a further short term facility of up to £8 million has been guaranteed by the Government in 1991. This cash has been used by the company to meet its ongoing commitments, including interest and other charges, despite realising a trading profit before interest charges of more than £2 million. The total amount of B & I borrowing guaranteed by the State at 31 December 1991 will be approximately £21.4 million. All State guarantees of borrowing by the company will cease following the sale.
There has been much comment on the improved operating performance of the B & I and increased traffic carryings under the plan of action. I have consistently acknowledged this to the board of the company and publicly. I also took the opportunity of doing so in the Dáil last week and I would like to place it on the record of this House today. Let me now do so. I want to acknowledge and publicly thank the board, the management and all the staff of the company for their efforts in making the plan of action work. Nobody appreciates more than I do the very difficult circumstances they have had to work in over the past numbers of years. They did so in a very professional and exemplary manner.
However, the fact remains that despite reported operating profits of £1.8, £2.8 and £2.3 million in the last three years, the company needed £6.2, £4.8 and £6.0 million cash from the Exchequer to stay in business. Unfortunately, the company can only finance its operations with substantial and continuing equity injections from the Exchequer. It is also clear that the B & I has been unable to generate the resources it needs for the renewal of its fleet which will be necessary if it is to remain competitive and maintain market share. The chairman, on behalf of his board, has made these points to me on a number of occasions. It was against this background that I launched the review of the options for the future of the company to which I have already referred.
In May 1990, the board of B & I submitted to me options for the future of the company under various scenarios. These options made it clear that the status quo could not be maintained. On the contrary, the only way to ensure the future survival of the company was to undertake further rationalisation and substantial job reductions so as to eliminate the unprofitable areas of activity and achieve further improvements in efficiency. The board's rationale was based on the clear recognition of the need for the company to gear its operations for the increasingly competitive conditions in the marketplace for both tourism and freight. The board also highlighted the need for balance sheet restructuring as part of any long term solution. The benefits that would accrue from economies of scale by a merger of the activities of the company with another shipping company were also highlighted together with the potential that such would provide for financing future development needs. In response to these proposals, I sought independent advice to ensure that every possibility was fully explored and I conveyed this decision to the board at the time.
In August 1990, I commissioned Stokes Kennedy Crowley Corporate Finance Limited to advise me on the best and most economic means of terminating Exchequer support for the B & I at the earliest possible time, having regard to the need for adequate capacity and competition in the provision of passenger and freight shipping services to and from Ireland. The report from Stokes Kennedy Crowley Corporate Finance Limited came to broadly similar conclusions as the report from the Board of the B & I on the realistic options which were available to meet the objectives as outlined.
The consultants examined the feasibility of four key options for the future of the company. These were: continuation of the status quo; redevelopment with major capital investment; liquidation; or the sale of the company.
The feasibility and financial implications of each of these options was assessed by the consultants and they identified the sale of the B & I as the most favourable option. They were of the opinion that this option would have a positive effect on access transport services in a situation where the purchaser would bring financial and operational strength to the company, resulting in greater competition on Irish Sea routes. They also believed that a sale would secure the future employment of the majority of the company's employees.
The Government considered the consultants' report in September 1990 and decided that the consultants should be requested to explore the level of interest which existed in the international shipping market for the acquisition of B & I.
SKC then proceeded to have extensive discussions with a number of interested parties. A prerequisite of all parties was that the State would assume responsibility for most or all of the company's substantial long term debt because it quickly became clear that there was no prospect of effecting a sale unless the Government agreed to take over the company's debt. A significant reduction in the workforce was also an integral part of each of the proposals.
Before finalising their recommendations, Stokes Kennedy Crowley also had discussions with the management of the B & I who had submitted a proposal for a staff/management buy-out of the company. These discussions were held specifically at my request.
Having assessed all the offers made by the interested parties, the consultants strongly recommended that the Government should pursue the offer made by Irish Continental Group plc, which trades as "Irish Ferries". In their view, this would offer a firm prospect of ensuring a strong strategic shipping line, under the Irish flag, of sufficient scale to compete internationally.
The Government decided on 16 January 1991 to proceed with negotiations for the sale of the B & I to Irish Continental Group plc. A memorandum of agreement for the sale by the Minister for Finance of the entire share capital of B & I to ICG was signed on 28 February 1991. A clause in the agreement provided that it would lapse if, for whatever reason, the sale was not completed by 16 August 1991. Following the signing of the agreement, ICG had a comprehensive due diligence exercise carried out on B & I. This led to further complex and protracted negotiations with my advisers on a range of additional items in respect of which ICG had sought compensation.
ICG also entered into extensive negotiations with the B & I unions with a view to reaching a comprehensive agreement on rationalisation and work practices prior to completion of the sale. However, I regret to say that negotiations with the unions took much longer than was anticipated.
By 16 August 1991, a share purchase agreement had not been concluded and, accordingly, the memorandum of agreement with ICG expired on 16 August 1991. Nevertheless, further detailed discussions were continued with ICG after 16 August. While progress was made, the expired memorandum of agreement was not replaced by any new legal agreement.
During September, while discussions were continuing with ICG, I received representations from the Chairman of B & I, acting on behalf of independent board directors, to the effect that in their view the terms of the proposed sale to ICG did not represent good value. They recommended that, in view of the Government's intention to proceed with the sale of the company, the way should be opened once more to competitive bids. The chairman of the B & I Board advised me that, given a decision to sell at the best price available, the advice was that fair value is whatever is the best price that can be obtained in the market.
At the same time, my advisers became aware that a consortium of the B & I management and staff, together with their Danish backers, were anxious to make a revised offer for the company. My advisers had informal discussions on 2 October with the Danish backers who indicated the type of offer they would support. They indicated that they would need two weeks to make a final decision.
Approximately one week later, Mr. Blaesbjerg and some colleagues, together with B & I management, met with Stokes Kennedy Crowley Corporate Finance Limited. They asked, inter alia, for permission to carry out a due diligence exercise on the B & I. As I had not made a decision at that stage whether to re-open the tendering process, I refused Mr. Blaesbjerg's team access to commercially sensitive information on B & I.
On 14 October last I asked the Secretary of my Department to obtain from the B & I management consortium within seven days an indication of the type of bid they would make for the company. I obtained this on 21 October.
I should emphasise that up to this date there has been no trade union involvement in the MSBO/staff buy out consortium. However, when the B & I group of unions requested that they be given an opportunity in conjunction with the MSBO consortium to prepare a proposal for the acquisition of the company, I agreed to allow them two weeks to do so. I may tell the House that I did so reluctantly as we had already been through an exhaustive trawl of the international shipping market and a competitive tendering process for the sale of the company.
The fact that I agreed to reopen the process was in deference to the views of the chairman and the independent directors. More importantly, it was a major concesion on my part to the management and the trade unions. These are the facts and so I must, therefore, reject the claim which has been made that I used the MSBO to get ICG to increase their bid.
Both Irish Continental Group and a consortium of B & I management and staff, together with their Danish backers, were invited on 25 October to submit fully comprehensive offers within a two week deadline ending on 8 November 1991. I conceded to requests from the consortium for an extension of the deadline. This was extended firstly until 15 November and then for a further week until 22 November, 1991. As a result of the collision involving the m.v. Kilkenny, I agreed to give the MSBO consortium a further extension until 28 November. An offer was finally received on that date from the consortium. A further period was subsequently allowed for clarification of the offer. In all, a total of five weeks was allowed. ICG were given the same five week period within which to submit a revised offer.
I appointed an assessment committee comprising representatives of my Department, the Department of Finance and Stokes Kennedy Crowley Corporate Finance Ltd. to examine the two offers. Following detailed consideration of the offers the assessment committee made a unanimous recommendation to me, which I accepted. This was that the sale should be concluded with Irish Continental Group subject to final agreement on all issues.
The Government considered the matter at their meeting on 4 December 1991. This allowed seven days for the assessment committee to make their recommendations. During the Government meeting I became aware of information from the advisers to the MSBO consortium to the effect, inter alia, that the management and staff had withdrawn from the consortium bid involving Danish interests and wished to have an amended bid submitted on their behalf on terms substantially similar to the consortium bid.
While the terms of this revised offer were presented as being substantially similar to the MSBO consortium bid, the fact is that only £2 million of the proposed £5 million purchase price offered could be paid immediately. The balance would be paid on a deferred basis which would have to be agreed. In addition, the revised offer proposed that discussions with suitable partners, including Irish Ferries, would take place after 12 months. The revised offer was, in truth, worse than the previous MSBO offer which the assessment committee had advised against. Logically, therefore, the fresh proposals had also to be rejected.
Having considered the overall position in the light of the report of the assessment committee, the Government decided that the sale of the B & I to Irish Continental Group should take place subject to final agreement on all issues. In arriving at their decision the Government noted the view of the assessment committee that the buy-out proposal had represented a welcome initiative in Irish industry, involving an equal partnership between management and staff. The Government agreed with the committee's conclusion, however, that, in line with standard practice, the B & I should be sold to the best offer, Irish Continental Group, unless there were other compelling circumstances for not doing so. On the basis of the two offers received, the Government were satisfied that there were not.
The ICG bid of £8.5 million is substantially better than the MSBO offer of £5 million with £3 million of that on a deferred basis. Both ICG and the MSBO consortium sought an Exchequer investment of £35 million to remove the company's debt prior to the sale. Clearly, the sale to Irish Continental Group will result in a substantially lower cost to the Exchequer.
I am satisfied that the sale to the Irish Continental Group represents the best project for the future development of the B & I. It will create a strong shipping entity with substantial synergistic benefits, a proven track record and the ability to make the necessary investment in the future of the combined entity. In this regard, ICG are committed to investing more than £30 million in the B & I over the next five years.
I would see the following as some of the main additional benefits which can be expected to accrue from the acquisition of the B & I by ICG: the maintenance of vital Irish shipping/maritime skills; the maintenance and development of critical shipping routes vital for tourism and national transport needs; the creation of the platform for an increase in capacity and improvements in the quality of services; competitive market-led fare policies; the overall enhancement of B & I's services and, in particular, the development of its central corridor and Southern corridor services; removal of the requirement for ongoing Exchequer funding; and the maintenance of B & I's ships on the Irish register. These benefits should make a substantial contribution to employment creation both directly and indirectly.
In essence, the sale will lead to the creation of a strong Irish shipping company with the potential to alleviate the twin evils of undercapacity and high access costs. It will also preserve competition, which is a vital ingredient in achieving these objectives. The provision of a modern, efficient and competitive access transport network, integrated as far as possible with the rest of the European Community's network, is of vital concern to the Irish economy.
ICG is committed to the creation and development of a dynamic shipping entity, under the Irish flag, which will be capable of competing internationally — a company which has committed itself to providing high quality service and secure employment. The employees of B & I will now have an opportunity of directly participating in this strong new Irish group.
At this stage I would like to inform the House that last Tuesday my Department signed an agreement with the Irish Congress of Trade Unions and the B & I unions on matters relating to the sale of B & I to ICG. I would now like to read this agreement into the record of the House:
The Irish Congress of Trade Unions and the B & I Group of Unions acknowledge the view of the Minister for Tourism, Transport and Communications that the acquisition is in the best long term interests of B & I, its employees and customers and also acknowledge his views that it will lead to the creation of an enlarged Irish-owned shipping enterprise with the resources to develop and provide an enhanced level of services to Irish tourism and export trade.
The Minister for Tourism, Transport and Communications accepts the legitimate concerns of the Irish Congress of Trade Unions in relation to the future development and ownership of the B & I Company and the development of Ireland's access transport services.
To address these concerns, the Minister hereby affirms that the Government
(1) fully accepts the importance of shipping for Ireland from a strategic point of view;
(2) will seek to have at all times sufficient ships on the Irish Register which could be utilised in times of emergency to service our strategic trading routes;
(3) will continue to pursue vigorously with the European Commission Ireland's case for the funding of improvements in access transport services.
The Minister also affirms that ICG have indicated to him their intention to maintain the company in Irish ownership and have confirmed that their plans for B & I over the next five years include:
—The retention of all existing B & I shipping routes;
—The provision of extra capacity on the m.v. Leinster;
—The sourcing of an improved vessel to replace the m.v. Munster on the Rosslare/Pembroke route;
—An upgrade of facilities throughout B & I;
—The replacement of B & I's container ships;
—The provision of long term sustainable employment in B & I;
—Share ownership for B & I employees.
The Minister undertakes to obtain from ICG an undertaking that they, ICG, will fully abide by the current Trust Deeds and Rules of the B & I Pension Funds as disclosed to ICG during the due diligence exercise.
The Minister acknowledges that the ICTU and the B & I Group of Unions strongly feel that he, on behalf of the Government has a pivotal role to play in ensuring these pledges by ICG are fulfilled. Accordingly, they have sought a specific undertaking from the Minister that he will perform this role.
The Minister undertakes to introduce an amendment to the B & I Line Bill, 1991 on rights of employees as agreed with the ICTU and B & I Group of Unions as per attached.
Subject to ratification by its members, the ICTU and the B & I Group of Unions have confirmed that they are prepared to positively cooperate with the sale of B & I to ICG on the basis of this Agreement.
This is a very important agreement which has been entered into with the ICTU and the unions and I am very proud that it has been achieved. As I said in the Dáil earlier this week, I look forward to the amalgamation of these two Irish companies and wish them every future success. I also wish to thank the board, management and staff of B & I for their constructive and co-operative approach throughout the lengthy and complex negotiations. I would also like to thank the Irish Congress of Trade Unions, with whom I share the same vision and goal for the development of a sound shipping industry which will sustain and expand employment for Irish mariners.
I commend the Bill to the House.