Dáil Éireann díospóireacht -
Thursday, 23 Feb 1995

Vol. 449 No. 6

Adjournment Debate. - Proposals for Irish Steel.

Mrs. O'Rourke

I thank the Minister for Enterprise and Employment, Deputy Bruton, for coming in this evening to reply to the debate. I have raised this matter because it seems to be difficult to get full information about proposals in respect of Irish Steel and other companies, such as TEAM Aer Lingus which is not under the remit of the Minister. Information about such companies has been issued in a fragmented and haphazard fashion. The Minister issued a press release on Tuesday or Wednesday evening following a Government decision on Irish Steel. I thought the press release was prepared very hastily and it certainly posed more questions than gave answers. I have raised this matter on the Adjournment because of a lack of transparency in terms of information on this issue.

When we were in Government we were positive and helpful towards Irish Steel and we wish to remain so. The previous Minister for Enterprise and Employment, Deputy Quinn, negotiated with the then Minister for Finance, Deputy Ahern on securing approval, in principle, for an injection of funds into Irish Steel. That positive and helpful attitude towards Irish Steel remains within our party but it is difficult to maintain our stance in view of the sketchy information we are receiving.Not only members of the Oireachtas but the public are entitled to receive full information on this matter as they pay the taxes which will be invested in this company. Will the Minister indicate the precise proposals for Irish Steel and when he will present them to the European Commission? Is there flexibility regarding the amount to be invested and can additional funds be provided at a later date? Is there a bottom line as there was when the survival plan for the company was submitted to Cabinet and received approval, in principle, last autumn? Does the Government intend to retain any stake in Irish Steel? The Minister's statement was extremely vague on that. Has Irish Steel met its budgetary and performance targets as set out in the survival plan?

Since I tabled this matter for the Adjournment I had a satisfactory conversation with the Chairman of Irish Steel and received information from him. I applaud his open approach when I sought information from him. The public deserve to be informed of the full facts and not to be given an unclear statement. It is time they are given full information.

As we move from providing State subsidisation or protection for commercial State bodies to commercial viability, it is important that the public be appraised of the facts, otherwise an incoherent and incomplete picture emerges resulting in confused reporting which may have adverse effects on the company in question. I understand the workforce in Irish Steel has made strong efforts to meet its deadlines, productivity levels and budgetary targets and that the chairman and the board are intent upon that. Yet the picture presented is entirely different.

While Irish Steel is under the aegis of this Minister, TEAM Aer Lingus is the responsibility of another Minister. In recent days startling stories have emerged about TEAM and the employment prospects of a number of people appear to be under threat again. Why was that story allowed to develop? I urge those commercial State-sponsored bodies and the responsible Ministers to lift the aura of secrecy surrounding those companies and be forthcoming regarding proposals for them. If they are so they will find us, the Opposition, and the public at large, open to persuasion.Certainly the public need to be informed and receptive to the full disclosure of the facts. Otherwise Irish Steel is being done a disservice. Is there a regular way in which the viability plans — the two we have had and those to come from the commercial State-sponsored bodies — can be examined? There is a need for a committee other than the Joint Committee on Commercial State-sponsored Bodies which has no powers of compellability and can only examine matters in a déja vu sense. It does not have the resources to conduct the kind of audit and vigilant monitoring of which I speak.

I thank the Minister for coming into the House. I ask him to answer precisely the questions I have posed. Will he agree that it is better that such facts are not extracted unwillingly from a body, agency, Department or group but they are encouraged, as I encourage Irish Steel in this instance, to make the facts known? They will then find favour with the public in their onerous task.

Minister for Enterprise and Employment (Mr. R. Bruton)

It is not true that I have been less than forthcoming with information but the Deputy must be aware that there is information which is commercially sensitive in all such companies and in all such negotiations that we might embark on. As an example of my willingness to provide information, I have answered fully the Deputy's questions about what would be interpreted by many Ministers as the day-to-day workings of a company for which I am not responsible to the Dáil. I have today given detailed production figures in order that the public and the Opposition spokesperson would be properly informed. I reject any suggestion that our press release or decision-making was hastily put together. In order to understand the position of Irish Steel——

Mrs. O'Rourke

I did not say hastily —— I said confused.

Mr. R. Bruton

——and its future prospects it is necessary to outline the recent history of this company. Irish Steel is a small steel producer, producing a range of basic steel products, about 85 per cent of which are exported. In commercial terms the company has always been marginal and profits generated during upturns in the steel business cycle have always been inadequate to carry the business over the downturns in the cycle. By June 1993 the company had accumulated losses of £118 million and without a radical restructuring was always unlikely to achieve long term viability.

The early 1990s was a time of crisis in the European steel industry generally and the problems at Irish Steel started to come to a head in 1993. The company lost £13 million on a turnover of £58 million in that year. The company was projecting a similar level of loss for the year ended June 1994 and during 1993 tried unsuccessfully to negotiate a cost reduction package with the workforce.

My predecessor, Deputy Quinn, engaged outside consultants, Simpson Xavier, at the end of 1993 to assess the Irish Steel viability plan. The subsequent Simpson Xavier report was critical of the 1993 plan and a new viability plan was drawn up by Irish Steel at the end of April 1994. This aimed at reducing the cost base of the company by £8.4 million net per annum through a combination of redundancies, cuts in basic pay and a three year pay freeze from July 1994 and by securing cost reductions from suppliers. As everybody is aware, there were many difficulties throughout the summer of 1994 before the plan was finally agreed. The plant was reopened, to implement the plan, on 27 September 1994. The board submitted a final plan to return the company to profitability within a period of three years on 28 November 1994, which included a request for £50 million — £40 million in equity and £10 million in guaranteed borrowings.

Since taking up office I have considered the company's application for funds. A number of issues must be addressed before the Government could approve the commitment of such large volume of taxpayer's funds to the company.Under the rules of the European Coal and Steel Community, a Government is not permitted simply to subsidise a steel plant which is not viable. No Government aid can be granted until approval has been obtained from the Commission and all other member states. Such agreement cannot be assumed.

In considering applications for State aid to the steel industry, the European Commission apply the criterion that the company should obtain viability within a three-year time span. In assessing viability, the Commission specify the gross operating margin which steel companies must achieve under normal market conditions in order to obtain lasting financial viability. The reason State aid applications are assessed in such a demanding fashion is that the European steel industry has long been in a position of over-capacity and it is felt that State aid to particular companies should not affect competition in the industry. Other member states also view State aid to the steel industry very critically and Members of the House may have seen reports in The Financial Times and other newspapers during the week indicating possible opposition to aid for Irish Steel from certain member states. For all these reasons the Government in considering the application wishes to be satisfied that the application by Irish Steel for funds is properly formulated before forwarding it to the Commission.

In its decision on Tuesday, the Government agreed that negotiations with the European Commission for approval of State aid to Irish Steel should be on the basis of £50 million. It is expected that it will take some months before the Commission and the Council are in a position to take a final decision on the application. The application to Brussels is based on the company's viability plan being fully implemented. There is a number of individual capital investment projects within the £50 million restructuring plan. It will have to be shown that these projects will meet the cost benefit projections that have been put forward in the viability plan before any funding will be committed to them. In addition, the company viability plan is critically dependent on the company achieving the production and financial targets set out in the plan.

During the period since October, in which the company has been implementing the viability plan, the production of finished steel products was 5 per cent less than budget. The Deputy has the detailed figures available to her. This shortfall has resulted in a negative contribution to profitability of approximately £200,000. Detailed monthly figures have been supplied in the annex to the reply. The company argues that the shortfall arises because there is a learning curve involved for the workers in the implementation of the viability plan and that they expect the shortfall will be made up by the end of their financial year on 30 June 1995.

Because the attainment of the targets is so fundamental to the viability plan I will be closely monitoring the performance of the company in the coming months. I understand that all the employees in the company are committed to achieving the targets set down in the viability plan and I hope they are successful. One of the recommendations of the Simpson Xavier report was that the process of attracting a strategic partner should be carried out in tandem with the reorganisation of the company. The company itself and the Government also accept the need for a strategic partner to secure Irish Steel's long term future. A strategic partner could help improve the marketing and distribution of the company's products as well as facilitating the rationalisation of the company's product range. A strategic partner would also be expected to contribute to the planned investment in the company.

For all of these reasons the Government has now decided to open negotiations on the possible sale of shares in and control of Irish Steel Limited. Irish Steel has spoken with an Italian company and a company from the US. It would not be helpful or appropriate to give the names of these companies or others who may express an interest. Whether these companes will continue their interest remains to be seen. I would expect the decision to open negotiations will generate interest from other companies. In this respect the Government is currently engaging an independent specialist to advise it on this matter.The details of negotiations with any potential strategic partner will, of necessity, have to remain confidential until a conclusion is reached. At this stage I cannot predict how or when these negotiations will end. The process will involve our advisers dealing with companies who have already been in contact with Irish Steel and any others with a serious interest. The advisers will also be required to evaluate the offers and make recommendations to the Government. The size of the stake to be acquired will be a matter for negotiation.I cannot go further in detailing our intentions at this stage because of the preliminary state of discussions.

To sum up, the future of Irish Steel is dependent on EU approval for the investment package which underpins the viability plan. Second, it is dependent on the ability of the company to deliver on the targets in its own viability plan. Third, it would be greatly assisted if a deal can be done with a strategic partner who could contribute to the success of the company. None of these three elements can be assumed at this stage and Government action alone will not guarantee success. Notwithstanding this, the Government is doing all it can to secure the future of the company. I call on all others who can assist in this process to do so and to refrain from any action or statement that could be detrimental to the successful future of Irish Steel.

Mrs. O'Rourke

That is the Minister's answer to everything; do not give the information.