I thank the Chairman for his kind words. It is a pleasure to be here. As this is the first occasion on which I have sat on this side of a committee room, I hope members will not be too hard on me. I look forward to working co-operatively with the committee in the coming months and, perhaps, years. The committee is obviously going to be extremely busy because it appears to be covering the work of three Departments. As members are aware, the Government is giving additional responsibilities to committees which they did not possess in the previous Dáil. I refer to the vetting of appointments, the holding of pre-legislative sessions - we will be having such a session later - and, if the referenda are passed in November, investigative powers. Much of the focus of parliamentary business is going to shift from the Dáil and the Seanad to the committees. In that context, I wish members the very best in their work.
On 19 May I announced my intention to transfer the functions of Dundalk Port Company to Dublin Port Company. The draft transfer order we are discussing is the instrument by which the transfer will take effect. The order will transfer all functions, staff, assets and liabilities of Dundalk Port Company to Dublin Port Company.
It was with some regret that, having considered all the options, I came to the conclusion that the financial difficulties faced by Dundalk Port Company meant that it no longer had a future as an independent company. Dundalk town has a proud maritime tradition dating back many centuries. The port company, established in 2002, was the successor of Dundalk Harbour Commissioners established back in the mid-19th century.
In the early years after corporatisation the new company traded well. As the larger ports operated at near capacity, smaller ports, such as Dundalk, benefited from niche markets, in particular the importation of construction materials. The total number of vessels entering the port grew from 184 in 2002 to 251 in 2006. Over the same period the total tonnage handled grew from 290,000 tonnes to 436,000 tonnes.
However, the financial performance of the company was less impressive. Since corporatisation in 2002, the company has only returned an operating profit twice in two years, 2006 and 2007. The onset of the current recession has had a detrimental effect on traffic at all of our ports but the smaller ports have been particularly badly affected. Dundalk Port handled only 140,000 tonnes in 2010, a 70% drop on 2006. The figures for 2010 alone show a drop of 36% compared to 2009.
The financial impact of this fall off in business is evident in the company's accounts. The company has been loss making since 2008. In 2010 the company recorded an operating loss of €1.1 million, on a turnover of only €778,000. The company has managed to sustain these losses by eating into its cash reserves. These stood at €1.2 million in 2008 and are now down to approximately €500,000.
My Department monitors closely the corporate governance and performance of the bodies operating under its remit. In this context, the Department raised its serious concerns with Dundalk Port Company on several occasions since 2008. These included issues relating to establishment of subsidiaries without ministerial approval and issues relating to pension provision.
The statement on behalf of the shareholder at the 2009 annual general meeting pointed out that the company was not reducing its cost base in line with the reduction in business and that it needed to take action to prevent losses from further depleting the company's cash reserves. The company did not take sufficient action and the deterioration of the company's finances accelerated in 2010. In early 2011 it became clear to my Department that the company could not take the necessary steps to put the business back on a sustainable footing. It was at this point that the Department stepped in to appoint financial advisers to examine the company.
Farrell Grant Sparks, FGS, was appointed in February to conduct an independent business review of the company which analysed the company's finances and assessed the various options available. It concluded that in a do-nothing scenario the company would go out of business in a matter of months. It also found the difficulties at the port were not temporary and radical changes would be needed if the business was to survive. However, FGS concluded it was unlikely the company had either the financial or management resources to implement such a corporate recovery plan, which at that stage was long overdue. In addition to the poor financial performance, the issue which really sealed the fate of the company was its pension funding.
Like all the port companies, upon corporatisation the company took responsibility for the existing pension scheme of its predecessor, the Dundalk Harbour Commissioners. Once corporatised the company had an obligation under the Harbours Act 1996 to establish a pension fund. The company did not meet its obligations nor did it register with the Pensions Board which is the statutory regulator for pension schemes. Accordingly, the largest liability on the company's balance sheet is its pension liability, which amounts to more than €1 million. This is the background to my decision in May that the most orderly and efficient way to manage the company's affairs is to transfer it to Dublin Port Company.
This does not reflect well on the management and board of Dundalk Port Company. I am deeply disappointed with the manner in which the affairs of the company have been conducted, in particular with the pension matters. The current structure of the port sector has not helped the situation, whereby the State owns ports of varied sizes which are all subject to a one-size-fits-all corporate governance regime. The option of amalgamating Dundalk Port with another existing port company was examined prior to corporatisation in 2002. However, Dundalk Harbour Commissioners were determined the port would continue as an independent entity.
In hindsight, it is clear the decision to set Dundalk Port up as an independent company may not have been the right one. Given the small size of the business, the pension deficit the company inherited and the overheads involved in running a State company, it was always going to be difficult for the company.
This also illustrates the importance of State companies having good quality boards in place with an appropriate skill-set and a full understanding of the duties and obligations of a board member. Improvements in the appointments process are being put in place through the reforms the Government is implementing in this area.
When I announced the transfer, I stated that I hoped that port activities could continue at Dundalk. Over the coming months Dublin Port will assess the future commercial viability of the business and will ensure the issues relating to the pension scheme are regularised. I am pleased to report this process is under way. Since the transfer was announced in May, both companies have co-operated fully in the process.
Dublin Port has already examined the business and has had discussions with several port users. It will endeavour to keep the business open. This will be a matter the market will decide, however. If sufficient customers continue to use the port it may have a commercial future. However, Dublin Port does not intend subsidising a loss-making business nor should it.
Once the current difficulties are overcome, I would not rule out the possibility of the port returning to local control or being put to alternative uses in the future. There are several examples of small ports and harbours around the coast which are under local authority control or are in the process of being transferred to local authorities. Some of these ports, such as Youghal and Sligo, also have levels of commercial traffic similar to Dundalk.
A review of national ports policy is being finalised. A ports policy statement was published for the first time in 2005. A public consultation on a review of this policy took place in 2010. I intend to publish a revised ports policy document in the autumn. The State owns the majority of the port infrastructure in the country, all organised into port companies of varied sizes. A revised policy document will provide a framework for future decisions on the structure and ownership of the sector. The McCarthy group recommended the number of ports be reduced through amalgamations before any consideration of the State disposing of these assets.
There are no active plans to amalgamate any other ports. The circumstances in each port are quite different and need to be dealt with on a case-by-case basis. Options other than amalgamation may be more appropriate in some cases, such as transfer to local authority control as already mentioned.
Irrespective of the structure and ownership of the sector, the primary goal of a revised policy will be to ensure the ports provide an efficient transport service in and out of the country for goods and people. This will be vital to facilitate the economy's return to growth.
I look forward to engaging further with the committee on these wider ports policy issues as they evolve.