I was delayed because I got a call to vote in the Dáil, even though I was ready to come into the House.
The primary purpose of this Bill is to allow me, as the shareholder in the Irish National Petroleum Corporation, to discharge certain functions which are essential if the proposed sale of the INPC's business and principal commercial assets, chiefly the Whitegate refinery and the Whiddy oil terminal, to the Tosco Corporation is to be completed. The Bill also includes a number of provisions which could be activated at some stage in the future in the unlikely event that the current sale process cannot proceed to completion.
On 26 May last, legal documents were signed by the INPC and Tosco Corporation which commit the parties to completing the transaction on 16 July, subject to the fulfilment of certain pre-completion conditions. The most significant of these is the enactment of legislation by the Oireachtas to give me powers to perform a number of functions, without which the proposed sale cannot be successfully concluded. In those cir cumstances, the Government agreed to give priority attention to this Bill in spite of the fact that there are many other pressing items in its overall legislative programme. I am appreciative of the fact that both Houses of the Oireachtas have been able to find time for the Bill among the other items of business on their respective agendas.
Senior officials of my Department and the chairman and chief executive officer of the INPC recently met the Joint Committee on Public Enterprise and Transport to explain the terms of the proposed transaction and how it came about. I hope the committee members found the occasion worthwhile – my officials certainly did – and that it will have compensated in some measure for the limitations which have recently been placed on the time available to debate the matter here in the House.
During the debate in the other House last week, Deputy O'Malley reminded us of the circumstances in which he was instrumental in establishing the INPC back in 1979 during the so-called second oil shock, when Ireland was badly in need of additional oil to make up for the shortfall in supplies through the normal channels. At that time, a number of oil producing countries had made it known that they would provide incremental oil supplies only on a state to state basis. The INPC was established to provide a State presence in oil trading in that regard and, in view of the urgency of the situation, it was decided to establish it as a private limited company under the Companies Acts, with the Government as shareholder, rather than have recourse to the more usual method of establishment as a statutory State body with its own dedicated legislation.
Three years later, as part of the oil industry's response to a downturn in world demand for oil products, the private sector oil companies which built and operated the Whitegate refinery decided to withdraw from the facility. The refinery was then acquired by the State and responsibility for its operation was entrusted to the INPC. A further expansion of the INPC's role came about in 1986, when the company also became responsible for the management of the Whiddy oil terminal after the facility was gifted to the State by Chevron, the then owner. The House will recall that the terminal, which dates back to the late 1960s, had been inoperative since the Betelgeuse disaster of 1979 and Chevron was prepared to pay the State a sum of US$44 million to be released from its contractual obligations to reactivate the facility or to restore the site to green field status. In the event, Whiddy continued to lie dormant until the installation of a single point mooring facility made the tanks accessible once again in 1998.
A problem soon emerged with the operation of Whitegate in the State sector as the companies active in the Irish market were adamant that they would not do business with the refinery. In response, an arrangement known as the manda tory regime, or MR, was introduced, which compelled those companies to source 35% of their overall requirements from Whitegate at a premium price which was passed on to the consumer as a levy at the pumps. Without the income associated with the MR, the refinery would not have been able to survive for long, given its technical limitations and the other factors which militated against it operating on a fully commercial basis.
Over the years, the capabilities of the refinery have been improved but its basic drawbacks have remained. Whitegate, for example, lacks scale, technical sophistication and the benefits of integration with the more profitable sectors of the oil business. It operates in a market which is dominated by the local affiliates of the multinational oil companies and is entirely dependent in commercial terms on international refining margins. These margins are outside its control, are subject to wide fluctuations and are more often negative than positive. Against that background and in spite of dedicated and highly professional service from the INPC's management and staff over two decades, Whitegate's fortunes have been dogged by uncertainty and the threat of closure has never been far away.
In those circumstances, State ownership and particularly the availability of financial support under the mandatory regime has provided a lifeline for the INPC, without which Ireland would undoubtedly have lost the benefit of the strategically significant facilities operated by the company. At the same time, it has not been a satisfactory substitute for a proper commercial environment within the mainstream oil industry. Successive Governments have always been concerned about the potential threat to competitiveness posed by the MR and, as the arrangement is subject to annual review, Ministers in charge of the energy portfolio and the INPC itself have always had to live with the prospect that MR support, and consequently the refinery, might not survive from one year to the next.
Dependence on the MR has tended to become especially worrying whenever the necessity for investment at the refinery has arisen. This occurred most recently in the context of the need to adapt the refinery to ensure that its products would be able to meet new emission standards for motor fuels under the EU Auto Oil I programme which were to be effective from the year 2000. The proposal that went to Government at that time seeking approval for the auto oil investment, the cost of which was then estimated at over US$100 million, made it abundantly clear that there was no prospect of the INPC raising the necessary finance without the assurance of MR support at a level commensurate with the need to make the necessary loan repayments in addition to compensating for ongoing operational losses.
It was not a very encouraging prospect, but I am glad the Government was prepared to accept my recommendations and allow the INPC to proceed with its proposed upgrading project, which eventually entailed expenditure of US$75 million. This was a matter of life or death for Whitegate because without the upgrading project, there would have been no market for the refinery's motor fuel output once the new environmental standards came into force. Whitegate would have had to close and with its closure Ireland would have lost an important contributor to security and diversity of oil supply.
The rather bleak prospect of Whitegate's continued reliance on the MR to service its debts and maintain ongoing operations prompted the Government, when approving the new investment, to request the INPC to seek out possibilities for additional commercial activities to underpin the core refining business. No particular type of option was prescribed and nothing was ruled out. It was left to the INPC to use its best efforts to come up with options that could be identified and developed into workable proposals.
The company's enthusiastic, energetic and professionally conducted response to that challenge led to a situation in which the INPC board recommended to me a proposal submitted by the US based Tosco Corporation as representing by far the best and most advantageous prospect in both financial and strategic terms. This assessment was subsequently confirmed by my expert advisers and last July the Government was, therefore, prepared to permit the INPC to confer preferred bidder status on that company.
During the intervening year there have been intensive discussions on the proposal between the two parties. My officials and those of the Minister for Finance, with the help of independent financial and legal experts, were closely involved in this stage of the process to ensure that the shareholder interests were fully addressed throughout. Their attention to the detail of the small print and its implications meant that at times the process did not move as fast as some might have wished. However, we are dealing with a proposal to dispose of a strategic State asset. It is better in the long run that all concerned should be clear from the outset about what is expected of them once all the formalities have been completed.
The long process of negotiation has produced a proposal which I have been prepared to recommend to my Cabinet colleagues simply because I consider it to be in the best interests of INPC, of its workforce and of the country. Some concern has been expressed about the fact that the actual sale and purchase agreement and other documents on which the transaction is based have not been made public. I want to assure the House that this is simply because those documents contain provisions which are subject to the requirements of commercial confidentiality. All of the important elements of the deal have been incorporated in speeches and published statements in summary form and have gone on the public record. If and when the transaction is completed, a data room will be established where all relevant information will be made available, subject to the usual provisions of the Freedom of Information Act, 1997. In the meantime, Senators can be assured that the elements of the package are those which have been publicly stated.
There was a public hearing at the Oireachtas Joint Committee on Public Enterprise with the Secretary General of the Department and his officials where the issue was thrashed out fully and all who wanted to go that public meeting were welcome. There are no secret documents, hidden clauses or behind-hand deals of which I am aware, and this will become apparent when the time is right.
In the first place, in any disposal we think of the price achieved and in this case, INPC will receive US$100 million from Tosco. INPC will also retain the proceeds from existing debtors, and will be paid for its trading stocks at market prices on completion of the sale. INPC, and eventually the National Oil Reserves Agency, will also retain certain stocks originally acquired in 1990, at the direction of the Government, for strategic rather than trading purposes. On the other side of the equation, INPC will continue to be liable for the existing debt of about £70 million, most of which is due to the Auto Oil I loan, and for existing liabilities to trade creditors. The funding of the ESOP will also come out of the sale proceeds.
After all of these adjustments have been made, the net proceeds to the Exchequer will be considerably less than the headline figure of US$100 million. What exactly the net figure will be is difficult to say with certainty, as it changes from day to day in line with fluctuations in oil prices and currency exchange rates, for example, and the final amount will have to be recalculated at the time of completion. However, some indication may be had from the fact that a snapshot of the situation at the end of April 2001 put the net figure at approximately £70 million. Even allowing for adverse currency and price movements in the interim, the final outcome will be a positive transfer to the State, and this is considered satisfactory.
The proceeds to the State will, as is usual, be paid into the Exchequer, and it is not for me to decide that any portion of them should be applied for a particular purpose. I say that because I am aware that there is a strong body of opinion that moneys realised by the sale should provide a basis for financial assistance for a new pier and other developmental works in the Bantry area. I can only say that I will mention the representations which have been made to me in the proper quarter, that is, to the Minister for Finance, but obviously I am in no position to say what might be decided in a matter which spans a number of areas of responsibility outside my own. It would also involve the Minister for the Marine and Natural Resources and his Department.
While the transaction will undoubtedly be satisfactory for the State in financial terms, the principal benefit is the fact that for the first time in almost 20 years, there can be a solid basis for the future of both the refinery and the terminal, and for the strategic contribution they make to our economy.
It is a very long speech. I am sorry if the Senator is bored but I cannot do anything about it.
