I move: "That the Bill be now read a Second Time."
The main purposes of this Bill are to increase the statutory limits on Exchequer participation in Comhlucht Siuicre Éireann Teoranta, to provide that the company may borrow in foreign currencies and that the Minister for Finance may guarantee such borrowings and to provide for a larger board of directors for the company. The opportunity is also being availed of to make administrative changes desirable as a consequence of the integration of the food project with the other activities of CSET and to introduce certain minor amendments to existing legislation which will give the company more flexibility in relation to its managerial structure and to the submission of its annual accounts to the Minister for Finance. A provision in relation to the position of directors and staff of the company who may become members of either House of the Oireachtas is also included.
CSET has begun work on a major programme of modernisation of sugar plant which is estimated to cost in the region of £7 million over the next four years. Primarily because of the heavy demands in recent years on available capital to support the food processing project—to which I will refer in more detail later—the renewal of plant and equipment in the sugar factories has been unduly delayed. As a consequence some of this plant and equipment is now obsolete and its replacement is an urgent priority. The programme of modernisation will bring about an improvement in conditions and create a more satisfactory working environment at all four factories. The greater part of the investment will be at Carlow and Mallow where existing handling and processing facilities are insufficient to cater adequately for the quantities of beet which they receive.
The expectation is that within the EEC the production of Irish beet sugar can be maintained at a level of 170,000 to 190,000 tons and investment in the sugar factories is essential if CSET is to be as efficient as other Community producers of sugar. The present EEC arrangements, which remain in effect until July, 1975, provide that this country may produce 150,000 tons of beet sugar for which the full EEC support price will be guaranteed and a supplementary quota of 52,000 tons. Last year CSET processed 154,000 tons of sugar from 83,000 acres of beet. The yield was disappointingly low because of the abnormally poor weather. The company has contracted for 76,000 acres of beet in the current season and, given average weather conditions, this should yield approximately 170,000 tons of sugar. CSET is confident that its growers will continue to favour the beet crop despite the enhanced attractions of other farming pursuits within the EEC.
The existing statutory provisions relating to borrowing by CSET have been interpreted as empowering the company to borrow in Irish currency only and it is now essential that the company be empowered to borrow in foreign currencies. I am pleased to be able to say that on Tuesday last the company completed negotiations with the European Investment Bank for a loan of £2.8 million to finance in part its factory modernisation programme. This, in fact, is the first loan of the European Investment Bank in the new member countries of the EEC. Further suitable opportunities for foreign borrowing by CSET are likely to arise from time to time. Provision is made in section 4 of the Bill to empower the company to borrow by means of debentures in foreign currencies. Borrowing by the company otherwise than by debentures is not governed by legislation. As a consequence of the company's intention to borrow abroad, it is necessary to extend the existing guarantee powers of the Minister for Finance. For instance, the European Investment Bank, to which I have already referred, requires a ministerial guarantee as a condition of making a loan to the company. Sections 2 and 7 of the Bill extend the Minister's powers of guarantee; section 2 relates to debenture borrowing by the company and section 7 relates to borrowing otherwise than by debenture.
At present CSET is required to submit its annual accounts, duly audited, to the Minister for Finance within 90 days after the end of each accounting year. For many years the company have been unable to comply with this requirement because its activities are too diverse to allow for proper completion of audit within the period specified. It is usually up to six months after the end of the accounting year before the accounts are ready for submission to the Minister and it is proposed, therefore, in section 3 of the Bill to extend the time limit to six months. The section also removes a requirement in the 1933 Act that all changes in the format of the CSET accounts shall be prescribed by the Minister for Finance in statutory regulations. This requirement is unnecessary and, in fact, the Minister has not at any stage issued such regulations.
The existing legislation provides that the board of CSET shall consist of seven members. It is now proposed to provide for a maximum of ten members and the necessary provision is included in section 4 of this Bill. The extension of the board to ten members is desirable because of the wide variety of operations for which they are responsible, particularly now that the food processing project has been fully integrated with the other activities of CSET. In addition to the changes relating to the number of board members and to foreign borrowing, to which I have just referred, the section removes the requirement that the company must have a managing director. This requirement is too restrictive and, in fact, the company has not had a managing director for some years.
Qualifications regarding the financial interest of the Minister for Finance in the company and the duty chargeable on sugar are also being removed as these are no longer relevant.
CSET will require assistance from the Exchequer towards the financing of its sugar factory programme and, as the company's average level of borrowing is already considerably higher than its equity, the company has made clear its preference for share capital. Shares to the existing authorised statutory limit of £5 million have already been issued—£4½ million to the Minister for Finance and £½ million of preference shares to private sector interests. Section 5 of the Bill proposes an increase in the existing authorised share capital of £10 million. It is intended that the existing £1 million Exchequer loan to the company will be converted to shares, bringing the issued share capital to £6 million, and a provision for a further £4 million should on present indications be more than adequate for a period of at least four to five years ahead.
It is also intended—in section 8— to increase from £5 million to £10 million the statutory limit on advances and guarantees from the Minister for Finance to CSET. The existing advance of £1 million is, as I have indicated, to be converted to share capital and all that is guaranteed at present by the Minister is a debenture loan of £900,000. The Minister will be called upon to guarantee borrowings by the company from the European Investment Bank and possibly from other sources in future years and in order to cater adequately for this contingency, a new limit of £10 million on advances and guarantees from the Minister is proposed.
In an effort to reduce the very serious losses on food processing this operation has been integrated with the other activities of CSET under the direct responsibility of the CSET board. The advantages to be derived from this integration are an improvement in overall efficiency and the elimination of costs arising from the operation of two separate companies. Sections 9 and 10 of the Bill arise as a consequence of this change. Section 9 enables CSET to take over the Erin Food's investments in associated companies as Erin Foods is now a dormant company. Section 10 removes the obligation on Erin Foods—which is an approved subsidiary company of CSET within the meaning of the 1962 Act— to seek the approval of the Minister for Finance for alterations in its memorandum and articles of association and to submit its accounts to the Houses of the Oireachtas.
The Bill makes certain provisions in section 11 as regards membership of the Houses of the Oireachtas by directors, officers and servants of CSET. Provisions relating to Oireachtas membership have for some time past been included in legislation pertaining to State-sponsored bodies and it is considered that the opportunity afforded by the present Bill should be taken to extend them to CSET.
The position of the food processing project is one of serious concern to the Government. Since its establishment more than 12 years ago there has been a total investment of £25 million in the project and up to £10 million of this investment has been written off as irrecoverable. The main causes of these losses have been over-production in earlier years, and the continuing inability to achieve export prices sufficient to cover production costs and overheads. The proliferation of small processing units has significantly inflated production costs. Bulk sales to major food manufacturers, particularly in Britain, have accounted for a high proportion of exports and profit margins have been entirely inadequate because of very keen competition. There are no prospects of profitable operation in the bulk export market and in the past 12 months intensive efforts have been made to find new and profitable export markets.
In the financial year ended on 30th April last, the food project had an operating loss of the order of £660,000 and there is unlikely to be a significant improvement in the current year. This level of performance is unacceptable as it involves a degree of subsidisation from the other operations of the company which they cannot support in the longer term. In addition, deliveries of raw materials for processing have fallen short of requirements. The company have had to import potatoes on a limited scale this year to meet essential requirements for the Tuam potato factory, when a large number of growers failed to honour contracts, and this situation cannot be continued as a permanent arrangement. In any event, such a development would be contrary to the basic concept of the food project which was designed to assist the development of horticulture in this country.
The board of CSET are committed to taking all steps necessary to reduce food losses short of any steps which might lead to redundancy of full-time employees. The number of production units, however, which operate well below full capacity, adds very considerably to company costs and some rationalisation of these may be inescapable. The board of the company have been asked to give special attention to this problem and the Government will be prepared to consider favourably any constructive proposals which they may submit to improve the situation.
CSET is one of our major industries both in terms of output and employment. In its latest financial year it has achieved an estimated turnover of £34 million, comprising £17½ million on sugar, £9½ million on processed foods and £7 million on associated agricultural activities. Average year-round employment by the company is almost 4,000 and in addition payments exceeding £10 million are made to more than 20,000 farmers. The bulk of the employment given by the company is in provincial centres, in some of which alternative job opportunities are few. Ireland's entry into the EEC presents a strong challenge for the company in that it no longer has a right to a monopoly position on the home market on production and sale of sugar while export opportunities for items such as agricultural machinery and food products should improve. The company must be properly geared to meet this new challenge.
The present Bill is designed to aid improvements in company efficiency and to facilitate financing arrangements. These steps are an essential part of the company's adjustment to the new EEC situation and I confidently recommend the Bill for the approval of the House.