That a supplementary sum not exceeding £990,000 be granted to defray the charge which will come in in course of payment during the year ending on the 31st day of March, 1964, for the Salaries and Expenses of the Office of the Minister for Industry and Commerce, including certain Services administered by that Office, and for payment of sundry Grants-in-Aid.
This Supplementary Estimate is necessary to provide for financial assistance for Verolme Cork Dockyard Limited to enable the company to continue the building of ships at Rushbrooke, County Cork.
The announcement of the establishment of this major industry here in 1958-59 by Verolme United Shipyards, Holland, was welcomed at the time and was considered a major gesture of confidence in the industrial future of Ireland. Perhaps, it would not be out of place for me to give a short background to the setting up of this industry here and to the organisation responsible for its establishment. The principal Verolme company is Verolme United Shipyard and Engineering Company Limited, Rotterdam, which owns nine Dutch companies, including shipyards at Alblasserdam and Heusten, an engineering company at Ijsselmonde, an electrical works at Maasluis and a finance corporation at the Hague. Its associated companies are more than ten in number and include dockyards in Brazil, Norway and Mexico as well as a number of shipping concerns.
Negotiations which had commenced in mid-1957 culminated in January, 1959, when Verolme United Shipyards (VUS) acquired the shares of Cork Dockyard Limited with a view to embarking on a major development of the yard for shipbuilding and ship-repairing. A new company, Verolme Cork Dockyard Limited, was formed and since 1959 has proceeded with a programme of capital works. The position now is that 17 acres of land have been reclaimed, and buildings of modern design covering almost 150,000 square feet, and fitted with the most up-to-date equipment for shipbuilding and repairing, have been completed. An existing dry dock has been improved and two slipways for shipbuilding, with ancillary equipment, have been constructed. One slipway can accommodate ships of 35,000 tons dead weight and the other can take ships of up to 65,000 tons.
This is a substantial industry at present employing directly 850 workers, whose skill in applying modern methods of shipbuilding has shown a steady improvement. Unfortunately, the teething troubles normally associated with the development of any new industry have in this case been seriously aggravated by the world-wide depression which has developed in the international shipbuilding industry.
This depression has been so severe that even in countries with long established and fully developed shipyards Governments have found it necessary to come to the rescue of their shipbuilding industries. Substantial subsidies of the order of 20-30 per cent of contract prices for shipbuilding have been provided in France and Italy; and a number of other countries, including Spain, West Germany, Sweden and Japan have found it necessary to provide financial assistance in one form or another for their shipbuilding industries. Britain, too, has decided to provide very substantial financial inducements to encourage British shipowners to place orders for new ships with British yards.
The shipbuilding industry is in a different position from that of other industries in that it must secure its business in competition with shipbuilding industries in other countries and cannot be sheltered from this competition by protection in the ordinary way. Apart from this it is obvious that there is not a sufficient Irish home market for new ships to maintain a shipyard of the size of the Cork yard.
In these circumstances, Verolme Cork Dockyard Ltd. have had to accept orders at unremunerative prices in order to provide work for their yard and to maintain the employment there. As a result they have sustained heavy losses on the ships already built and it is anticipated that further losses on shipbuilding will be incurred though it is hoped that this will be at a diminishing rate as the skill and productivity of the workers improves with experience.
In this situation, Verolme Cork Dockyard Co. Ltd. represented to me that, unless financial assistance by way of shipbuilding subsidy could be provided, they would be unable to carry on and would be forced to close down their shipyard. The main grounds on which the representations were based were that: (a) the market for shipbuilding is at present in a most depressed state and other countries, with a long tradition of shipbuilding, have found it necessary to provide Government subsidies or financial assistance of some kind; (b) shipbuilding costs are of necessity higher here than in other countries principally because of the fact that this was a new venture and because of the lack of experienced labour and the absence of specialised sub-contractors for the shipbuilding industry; (c) the Cork company had not had the benefit of prosperous years in which to build up reserves and could not, therefore, withstand current operational losses; and (d) the parent company in Holland had not escaped the depression and were, accordingly, unable to provide additional finance for the Cork company.
A detailed examination of the company's representations and of their financial situation has been carried out by a group consisting of representatives of the Industrial Credit Co. Ltd., the Industrial Development Authority and An Foras Tionscal and, as a result, the Government are satisfied that financial assistance by way of subsidy is necessary in order to avoid the danger of the Verolme Cork Dockyard Co. Ltd. being forced to close down.
As Deputies are aware, it is not the practice to disclose particulars of loans advanced by the Industrial Credit Co. Ltd. to individual firms or in advance of publication in their Annual Reports of grants approved by An Foras Tionscal. In order that the House should have a full picture of the situation in this case, however, I feel that I am justified in making a departure from the normal practice on this occasion. I can tell the House that the arrangements with Verolme United Shipyards arose from negotiations carried on between the Industrial Development Authority and Verolme United Shipyards, which ultimately resulted in Government approval of proposals under which the Industrial Credit Company would make available £4,760,000 by way of debenture loan and Verolme United Shipyards would provide £725,000 for a development programme extending over a period from five to six years.
A substantial part of the programme has been carried out at a cost of £2,288,750 of which the Industrial Credit Company has provided £1,825,000 by way of debenture loan. The VUS contribution to development up to this stage would have been £463,750, under its contractual agreement, but in fact VUS has provided £687,000, the excess being accounted for by contributions to working capital. The difference between the total capital expenditure to date and the original estimate is £3,196,250 and is largely accounted for by items which remain in abeyance pending an improvement in the world shipbuilding position. In addition, An Foras Tionscal, with the approval of the Government, have approved a grant of £550,000 for the company under the Industrial Grants Acts.
The major portion, £400,000, of this grant will be used by the company to reduce their indebtedness to the Industrial Credit Company Limited. The grant will be merely a replacement of a previous loan commitment from the Industrial Credit Company to Verolme Cork Dockyard. The loan from the Industrial Credit Company Ltd. and the Foras Tionscal grant are of course, separate from and in a different category from the shipbuilding subsidy now proposed. For their part, Verolme United Shipyards have invested in Verolme Cork Dockyard to the extent of £687,000 by way of share capital and loan and, in addition, are owed £698,000 by the Cork company for goods and services.
The Government are satisfied that apart from the normal difficulties which can confront any new industry, especially one such as this which cannot be protected from outside competition in its early stages, the situation which confronts the Verolme Cork Dockyard Ltd. is brought about by the international depression in shipbuilding which has forced other countries to subsidise their shipbuilding industries. In the Government's view the new Rushbrooke yard could not have been expected to secure business at remunerative prices in competition with shipyards in the countries which are being subsidised by their Governments. In the circumstances, the Government consider that in order to maintain the shipyard in operation and the substantial employment which it affords a shipbuilding subsidy must be provided.
The Government propose, therefore, to provide subsidy for Verolme Cork Dockyard Ltd. in respect of the first five ships built or to be built at the Rushbrooke Shipyard. Of these, two have already been built, a third is being built at present and it is expected that an order for a fourth ship will be placed with the yard shortly. The subsidy will be related in each case to the losses sustained, taking no acount of depreciation in the case of the first and second ships.
In the case of these two ships, the amount of the losses to be made good by subsidy is £650,000, which represents 25 per cent of the contract price of these two ships. In the cases of the third, fourth and fifth ships the subsidy will also be less than the actual losses since in calculating losses for the purpose of subsidy depreciation will be included at not more than 40 per cent of normal rates and the subsidy will be subject to a maximum sum in each case. The maximum commitment, which represents percentages reducing from 15 per cent to 10 per cent of the contract prices amounts in all to £570,000 for these three ships.
The reason for the relatively high percentage for the first two ships is that a substantial part of the losses sustained on these ships was attributable to the inexperience of the labour force. As the workers gain in experience, skill and productivity, it is expected that the Rushbrooke yard will become progressively more competitive. In addition to the subsidy, further assistance will be provided until the end of 1964 through the waiving by the Industrial Credit Co. Ltd., of interest on its loan to Verolme Cork Dockyard, Ltd.
The total subsidy is estimated at £1,220,000, of which it is expected, that £990,000 may become payable in the present financial year, as subsidy on the first three ships and part of the fourth.
Verolme United Shipyards for their part will be required to convert into share capital of Verolme Cork Dockyard Ltd., £362,492 of money owing to them by the Cork Company and until the end of 1964 to waive interest due to them from the Cork Company.
The financial asistance now proposed is admittedly very substantial. It is clear, on the other hand, that the closing down of the Dockyard would cause the disemployment of workers, at present numbering 850, and the loss to the area of wages and salaries, which last year were in the region of £750,000 per annum. The House will understand that there could also be a loss of much of the State financial assistance already afforded to the company through the Industrial Credit Co. Ltd. Another consideration is that the benefits of purchases from Irish suppliers, which amounted to roughly £350,000 in 1962, would be lost. The imponderable repercussions would possibly be more serious.
The House is, no doubt, aware that the shipbuilding depression is occasioned partly by low freight rates arising from excessive tonnage in relation to demand and partly by a growing excess of world shipbuilding capacity in relation to the output of new ships. This situation has been aggravated by the practice in certain countries of providing direct or indirect subsidies for shipbuilding. So far as can be judged, the outlook for the immediate future is not promising and it is probable that world shipbuilding capacity will be reduced by the closure of a number of yards. The older and smaller yards are, it is considered, likely to suffer most, particularly in view of the trend towards larger ships and their construction in modern yards of substantial capacity.
The Cork yard is modern in its lay-out and equipment and its capacity is substantial. The future prospects of the company appear to depend on a substantial and progressive increase in labour productivity and the achievement and maintenance of a high level of activity in shipbuilding and ship repairs. I am informed that a marked increase in productivity has taken place recently in the yard and I feel that the financial assistance now proposed to be provided and the progressively increasing labour productivity should enable the company to overcome the shortcomings experienced hitherto. The company's association with the modern organisation of Verolme United Shipyards should make readily available considerable technological expertise and the services of a selling association with wide experience in world markets. This association should be of assistance in obtaining orders for new ships. I, therefore, recommend that the House should approve of this Supplementary Estimate.