Seanad Éireann díospóireacht -
Wednesday, 27 Jun 1979

Vol. 92 No. 7

Irish Steel Holdings Limited (Amendment) Bill, 1979: Second and Subsequent Stages.

Question proposed: "That the Bill be now read a Second Time."

Minister for Industry, Commerce and Energy (Mr. O'Malley)

The main objects of the Bill are to increase the authorised share capital of Irish Steel Holdings Ltd from £6 million to £25 million, and to raise the ceiling of borrowings which may be guaranteed by the Minister with the consent of the Minister for Finance from £3 million to £60 million.

Irish Steel Holdings Ltd. are a wholly State-owned Company with share capital of £6 million held by the Minister for Finance. The amount of borrowings covered by ministerial guarantee at present is £765,800.

The principal activity of the company is the manufacture of steel from ferrous scrap. Their principal products are reinforcing bars and sections in a limited range of sizes mainly for the construction industry.

Following advice from external consultants who made a thorough study of the company's operations and potential, the company have embarked on a major development and restructuring of the industry which it is anticipated will give more efficient and more flexible production. A new 90 tonne electric are furnace will be installed to replace the existing 30 tonne electric arc furnace. A continuous casting facility and a new universal bar and section rolling mill will replace older outdated plant. The programme envisages the commissioning of the new plant by mid-1980 and the expansion of crude steel output and finished product output over the succeeding five-year period to a projected annual output level of 282,000 tonnes of saleable products. This will be more than double present output.

While this restructuring of the steel mill will give greatly increased production capacity the work force will not be increased. The position is, however, that the company's operations are no longer viable and without this modernisation programme the industry would have to shut down with the loss of the jobs of over 700 workers and the loss to the country of its only manufacturer of reinforcing steel. The industry will now be given modern methods of steel production which will put the company's unit costs of production on a competitive level in the European Community.

The cost of the programme will be in the region of £45 million, including £10 million working capital and pre-production expenses. Of the £45 million, £10.5 million will be provided by the Exchequer as share capital, £4 million by an IDA grant, £17.5 million by a loan from the funds of the European Coal and Steel Community, £8 million by the leasing of equipment through United Kingdom banks and the balance from other commercial sources.

The crisis in the steel industry which has been with us since 1974 together with the outdated methods in use have created difficulties for the company and consequently they have had to borrow heavily to keep in business. The com pany's projections, however, show that even allowing for the servicing of these loans there will be profits in the third and subsequent years of operation.

As Senators are probably aware, the European Commission did not immediately approve Irish Steel Holdings' proposals. This was because of their requirement that investment proposals should not be in conflict with the restructuring requirements of the Community steel industry made necessary by the world steel crisis. The Commission initiated discussions between the company and a French steel company—Societe Metallurgique et Navale Dunkerque, Normandie (SMNDN)—which led to the conclusion in December last of reciprocal marketing arrangements. The two companies have agreed to market a proportion of each other's production in their respective areas of market influence—up to 30,000 tonnes per annum in each case when the Irish Steel Holdings plant becomes operational. During the period prior to the commissioning of the new plant Irish Steel Holdings and SMNDN will maintain contacts with a view to fostering relationships not only between the two companies but also with their respective customers.

I might at this stage point out that the company's policy will, of course, be in the first place to satisfy the home market demand, the balance of production being for export. The agreement with SMNDN will give the Irish company a foothold in the wider Community market as well as providing economies in production costs. However, apart from the anticipated benefits from the agreement the company are building up their own sales management team to deal with the increase in products for export expected to come on stream late in 1980 and have already made useful contacts to supply customers outside Ireland. The consultants who examined the projects are satisfied that the export targets can be met.

The European Commission is satisfied that together with the modernisation of the Irish Steel Holdings plant the agreement with the French company is in accordance with the general objectives for the Community steel industry. Irish Steel Holdings thus qualifies for a loan at a favourable rate from the funds of the European Coal and Steel Community.

There are also some other amendments to the Principal Act proposed in the Bill

—Section 2 provides for the change of name asked for by the company from Irish Steel Holdings Ltd. to Irish Steel Ltd.

—Section 5, besides providing for the raising of the ceiling for ministerial guarantee of loans includes some changes in the relevant section of the Principal Act so that the guarantee may cover

—loans and so on in a currency other than the currency of the State

—payment in respect of contracts entered into for leasing of plant and equipment as well as commissions and incidental expenses arising in connection with a loan or leasing contract.

—Section 6 provides for the approval of the Minister and the Minister for the Public Service to the remuneration of the chief officer of the company, and

—Section 7 provides for similar approval of any alteration or arrangement in the superannuation of the staff of the company.

The two last amendments are being included in the legislation for all State-owned companies as the occasion arises.

I am confident that the Bill will commend itself to the Seanad and I recommend the Bill for its approval.

Mr. McCartin

My side of the House agrees with what has been done by the Minister in this case. Anybody looking at the situation, the number of jobs and the size of the investment we are talking about, would naturally have to ask himself some serious questions. We must recall the commitments and the guarantees given to semi-State bodies in earlier years. I recall the situation when NET, a semi-State body, were formed. The guarantees that were given both to the consumers and to the Government were that the project was viable and that products would be sold at the right price and would be available competitively on the Irish market. We have seen a situation where those guarantees did not materialise. I hope that the people who made the plans in this case know exactly what they are talking about. I have no reason to believe that they do not.

The size of the proposed investment in relation to the number of jobs is what gives concern, plus the fact that in the end the State will be the underwriter if the plans do not work out. I have no doubt about the sincerity or the integrity of the people involved in drawing up these plans, but they have not put any of their own personal resources or their reputations at risk. I know the State is not making the complete investment but they are increasing their guarantee from £3 million to £60 million. Considering the difficulties in the steel industry all over Europe and the situation where unemployment has risen in areas with a tradition of more efficient steel production than anything we have been doing here, we must ask ourselves what else could be done with a similar amount of money.

We agree with the legislation; we know that 700 people are in employment and we know the importance of this industry to them. It is so important to them that a figure of money could not be put on the value of retaining their jobs. For that reason we do not question the legislation. But one feels obliged to ask what an investment of a similar nature could have done in other areas. This investment is almost twice the amount of money spent on the farm modernisation scheme for all of this country in one year; it is more than all of the regional fund over the number of years for which it will be payable. We are talking about a vast amount of money for the safety of a comparatively small number of jobs. Nevertheless, the Minister's decision is the one that we, on this side of the House, would make if we were in a similar situation, but my thinking should be considered also.

We heard the argument that we cannot leave ourselves wide open to the winds of fortune, should a situation arise in which we would not be in a position to import steel from neighbouring countries in the Community. We were left in this situation before, Irish Steel having had the monopoly for so long. There were in the past industrial problems in Cork which left all the industries dependent on the services of Irish Steel Holdings Ltd. high and dry for six to eight months, during which they were forced to run around the world looking for replacements of the supplies which they normally got. The argument that we cannot leave ourselves completely dependent on supplies from foreign-based industries is not entirely valid when we remember that when we had this security here we had a break-down in labour relations and we had a strike which left large segments of Irish industry running around trying to solve problems which had resulted from this strike. This aspect should enter into any calculations being made at present.

This is something that we will have to think about as time goes on and a decision need not necessarily be made now. When a question of this nature comes up in the whole context of the European Economic Community, if somebody argues about the subsidisation of or assistance to the dairy industry in Ireland, and the situation with the dairy industry in France, or some of the other European countries, I always say that we can produce the goods much more efficiently and at a better rate than they can be produced in France and that therefore there is a good argument for building up our industry.

Other industries could also be looked at in a similar way. If we have an amount of money to invest in a semi-State company it is only reasonable that we should ask ourselves whether we are putting it into the right industry, or whether other people can produce the product at a cheaper rate so that we can buy it at a cheaper rate, or whether we can put this money into an industry where we are sure we have the advantage, the expertise and experience to compete, so that there will be no question of the State ever being faced with underwriting losses.

From my experience of Irish Steel Holdings they are an efficient company. In spite of the fact that they enjoyed a monopoly we did not experience the sort of independent attitude and approach to their business dealings that one might expect from monopoly companies. I know of companies in the private sector which had a monopoly which were much more difficult to deal with than this company which enjoyed for a long time what might be called a monopoly in some areas of their business. Although they did not have a complete monopoly, nevertheless a lot of equipment and machinery was geared to deal with the sort of product that came out of Haulbowline in Cork. As a business Irish Steel Holdings Ltd. have been conowne ducted most efficiently. They have given a good service. The workers which they employ are entitled, on this occasion, to the protection and the guarantees given to them by the State, which we approve of. I would ask them to make the best of the opportunity being given to them and please let us not see anybody coming back in three or four years regretting that miscalculations had been made and that labour relations or some other problem created a situation in which the State had to foot the bill at the end of the day, and Irish industry had been badly served. I am confident from my experience of this company that this will not happen and I commend the Bill to the House.

Mr. Jago

Irish Steel Holdings Ltd, have been a long time with us now. They started in the earlier days of the State and they are much appreciated in the Cork area. They are also appreciated throughout the country, especially if we refer back to the years of the Emergency, from 1939 to 1945, when we were relying on Irish Steel to supply us with our requirements.

There was concern in the Cork area when we heard that to be competitive Irish Steel would require a new injection of capital and that due to the policy of the EEC on the curtailment of the production of steel there was a possibility that Irish Steel would disappear. Not alone was there concern for the loss of the product but also for the loss of the jobs which are very important in the area of the lower harbour. It was with relief that we heard that this arrangement had been made whereby they would associate with a French company so that production would be divided as to lines and that sales would be amalgamated. We look forward now knowing the way in which Irish Steel have been managed and the difficulties which they have overcome in the past, and knowing that now they are in a position to get greater production and greater sales on a fewer number of lines. Their efficiency should improve and we can look forward to better days. We hope that they will prosper and that this capital investment will be well worth while, as I am confident it will be.

Micheál Cranitch

I, too, welcome this Bill. Irish Steel, as we are in the habit of calling them, have been with us now for quite a number of years and we are very proud of the work that they have done. I am glad to note the change to the shorter form. We are very proud of the colossal length of steel bars that have come from that factory down through the years because the steel bars that are produced there are a vital ingredient in the construction industry. We cannot have buildings without concrete and steel. We have the cement already but it is only since Irish Steel came into production that we have been able to have our own steel bars manufactured in our own country. Perhaps we in the Cork area are inclined to get sentimental about this industry. We are very proud of it and of the good living the workers there can have. Unfortunately, industrial relations at one particular stage were not what we would desire but we have no tradition in the manufacture of steel products. By degrees we are getting used to the idea of producing steel here at home and, please God, with a better climate industrial relations will remain at a satisfactory level.

The Minister has said about everything that could be said. He put the matter clearly and briefly when he said that a new 90 tonne electric are furnace will be installed to replace the existing 30 tonne electric are furnace. That shows the determination of the company to increase their production and to increase it to a significant extent. The Minister went on to say that the programme envisages the commissioning of the new plant by mid-1980, which will be in about 12 months time, and the expansion of crude steel output and finished product output over the succeeding five-year period to a projected annual output level of 282,000 tonnes of saleable products which will be more than double the present output. In the world we are living in we must be highly competitive. It will be part of the functions of the company from now on to work in collaboration with their friends in France and an interchange of ideas and of techniques as far as marketing is concerned will be all to the good. In the Cork area we are anxious that the great work force there would remain at a constant level, certainly that it would not fall to lower than 700 workers. The workers have gradually acquired skills and have applied them in their work and we hope that this new injection of capital will ensure the viability of the firm of Irish Steel and that during the coming year they will go from success to success.

Mr. McGowan

I am very pleased to hear of the expansion of Irish Steel. One does not need to come from Cork to be proud to hear this news. In fact someone coming from Donegal might appreciate it more because those of us who drive across the Border fairly often see the vast amounts, even on the road, of steel that is imported into the country. I welcome the news that Irish Steel are to do a major expansion job. When one looks at the figures one finds that the amount of State funds going into the company is less than half what is needed because the company are raising by way of loan the greater part of the money. This is a very healthy sign.

I am aware that we are importing vast amounts of steel but the new rolling mill will actually put Irish steel into a completely new market. We are at present importing boatloads of sheet steel to make radiators, shutters, boats and everything else for which rolled steel is required. This is a great day for Irish Steel. Steel is one of our basic industries and Irish Steel will make a major contribution to the economy and to all the people who are indirectly involved in steel fabrication.

Unfortunately, again, we are importing fabricated steel. It is sold to us fabricated and with labour input, very often. There is a whole new basic change here and I welcome it. It is healthy from the national point of view and it will encourage many firms that were not engaged in the fabricating industry here to look at the prospects for the future.

Mr. Mulcahy

I welcome this Bill, too, and I should like to associate myself with some of the sentiments that have been expressed already. I would like to draw attention to the fact that there are certain strategic industries in this country and that steel for the construction industry is one of these. It is essential that we have at least one facility under each of the strategic areas in the country. I am thinking of oil as well as steel. Sometimes one hears statements from the EEC about restrictions, that there is over-capacity in oil refining, or that there is over-capacity in the steel business, and they put pressure on small countries, but small countries must resist these pressures. We must make sure that we have at least one facility that is capable of keeping us going in times of crisis or stress. I am very pleased to see the regeneration of this facility in Cork and to see the modern technology being introduced in terms of continuous casting facilities and so on. For too long we have tended not to bring our technology up to the best levels of the technology that our competitors have at their disposal.

I will make one other point. We are always concerned about whether units of this kind are economically viable. The Leas-Chathaoirleach has expressed the hope that this company will not have to come back to the Government in a number of years and say that they had underestimated costs and so on. For so long as an industry generates an amount of added value per person employed, or per £ of total investment, which is similar to the amounts generated by the competition, then we can keep on going. When we talk about losses and about not making profits, we are talking about certain residuals. Other countries, like Japan, have found this to be the case in the past and when countries like the US were operating to criteria which had to do with profit only, and did not continue at the rate of investment required to maintain their world market share, they lost market shares. We are not in that size of business; we are not talking about getting a world market share but we should keep it in mind when people start talking about businesses of this kind not being viable. I repeat that as long as they generate an added value per unit of input, that is per person or per pound of investment, then they will keep on going. I welcome this further development of one of our strategic industries.

Minister for Industry, Commerce and Energy (Mr. O'Malley)

I wish to thank those Senators who have spoken to this Bill. I am broadly in agreement with all the views that have been expressed on all sides. You, Sir, when you spoke earlier, mentioned the considerable cost of maintaining these jobs of which there are only 700. Many, many thousands of jobs could have been created de novo for the amount of money that we are talking about. However, the object of spending money is not strictly to maintain 700 jobs. If it were just that I would not ask this House or anybody to spend that type of money to save jobs because it simply would not be worth it. What is at stake here is something more fundamental than just the 700 individual jobs. This is the entirety of the steel manufacturing industry in Ireland. The manufacture of basic steel, such as goes on at Haulbowline, is a matter of some strategic importance to this country as well as being of considerable economic importance. In the past, for one reason or another, we had periods when there was a shortage of heavy steel for the construction industry and when that occurs—as it did once or twice—it has a disproportionately bad effect on the economy because the construction industry is a major part of our economy. The kind of steel that is proposed to be made here is what are called long products as opposed to flat steel products or sheet steel. Senator McGowan mentioned sheet steel but that will not be produced in Haulbowline though Irish steel will continue to galvanise imported sheet steel and to sell it as galvanised sheet. The products that will be made in this new mill are reinforcing bars, plain rounds, champered squares, torque bars, hexagon bars, equal and unequal angles, flats, channels, joists, universal beams and columns and extended billets all of which I think are relevant in one way or another to the construction industry primarily.

If there were to be an emergency of some kind which made it impossible for us to import steel, and if we did not have access to this kind of steel, we would be in very serious trouble indeed. It was not easy for me to make the decision to put at risk a great deal of public money with regard to this project. Equally the sort of misgivings I have, and which I think Senator McCartin and others may have to some extent, were shared in Europe by the Commission and I had to talk to Commissioner d'Avignon on three occasions before I finally got his agreement and the agreement of the Commission to go ahead with this project. The Commission have been very fair in their approach to this proposal. It is one which must have been difficult for them to swallow. We hardly know what the steel industry is but in Europe in recent years they have seen tens of thousands of jobs lost, not just in countries but in relatively small provinces in many of the continental countries. Of all the ailing industries of Europe steel is perhaps one of the sickest.

For them, therefore, to give us their support and encouragement in this project was a judgment on their part which was extremely fair to this country and took into account our island situation, our comparative isolation and the necessity for us, notwithstanding our membership of the Community, to have access to certain basic strategic materials manufactured within our own jurisdiction. The Commission have made available fairly substantial funds, at favourable rates of interest, as a mark or gesture of their support. I am also very glad that they were able to negotiate this arrangement with the steel company in Normandy whereby each company would sell certain products for the other and thereby enable each of them to shorten their line of products and to make each of them more competitive in terms of cost. There are several hundred jobs involved here as well as a steel industry and of course with the sort of money we are talking about they are the 700 most expensively retained jobs ever in this country.

I hope that those whose jobs have been retained at such considerable cost to public investment will bear that in mind. I would share with you, a Leas-Chathaoirleach, your anxiety that I or my successor would not be coming back here in a few years' time and saying to the Seanad that Irish Steel miscalculated or that they ran into enormous labour difficulties which have put the cost up 50 per cent, or 100 per cent, or whatever. I have had the very unhappy experience of having to live with NET during the last two years and I am conscious that this establishment is only a couple of miles away. It is my fervent desire not to have to come back to either House of the Oireachtas with an amending Bill to extend these already high figures any further.

As I mentioned in the other House, we are fortunate that Mr. Kevin McCourt, the chairman of this company, accepted my invitation to become executive chairman for two years to see this project through. I have every confidence in his ability to do that. He has already proved himself in the private sector in a not dissimilar sort of task and he has the ability and the talent to do an equally good job here on behalf of the public at large. I would express the hope that he will get every co-operation at every level of this company and from their contractors and sub-contractors as well. If that is forthcoming I have every confidence that this work can be completed on time and within budget. Work has been under way for the past several months and I am glad that it is on time and is so far within target. They will be coming into the more expensive and more difficult parts of the operation shortly. I hope they will continue to be as successful as they have been during the past few months in regard to this.

I have dealt with most of the points that were made but if there are any which I have overlooked no doubt Senators will avail of the opportunity on Committee Stage to remind me, when I should be glad to answer any queries.

Question put and agreed to.

Agreed to take remaining Stages today.