Seanad Éireann díospóireacht -
Wednesday, 3 Mar 1993

Vol. 135 No. 4

Nítrigin Éireann Teoranta Bill, 1993: Second Stage.

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

Minister of State at the Department of Enterprise and Employment (Mr. Brennan)

As Senators will be aware from the explanatory memorandum already circulated the purpose of this Bill is to increase the authorised share capital of Nítrigin Éireann Teoranta by £22.5 million, that is from £77.5 million to £100 million, to authorise the Minister for Finance to subscribe for shares up to the new level of £100 million and to increase the Company's facility to borrow under ministerial guarantee by £20 million, from the existing limit of £180 million to £200 million. The text of the Bill is in standard format and I hope will not give rise to any major difficulty.

Over the past 30 years the company and its financial difficulties has been the subject of much attention and debate within the Oireachtas and elsewhere. I will now briefly outline the background which has given rise to the necessity for this legislation.

NET was established in 1961 as a State sponsored body to manufacture nitrogenous fertilisers at Arklow. The company started in a relatively modest way but expanded to the stage where after the completion of the Marino Point plant in 1979 it was one of our largest manufacturing companies and a major chemical undertaking employing over 1,500 persons. While the Arklow plant operated profitably up to the early 1970s the growth of import competition pushed it into a loss making situation from 1974. By early 1973 NET was already considering a new facility at Marino Point to manufacture ammonia from oil but following the discovery of gas off Kinsale, the Government decided that an allocation of gas for ammonia manufacture should be made to NET.

To put matters in perspective, it should be recalled that at that time Irish gas consumption, including LPG, was around 200,000 tonnes of oil equivalent or approximately 80 million therms annually. Therefore new major customers had to be found for the 450 million therm potential annual gas flow — which was almost six times the national consumption — to enable the commercial development of the field. After negotiations between NET (and ESB) with Marathon, pricing terms were agreed for the 20 year take or pay contracts as they are called. These terms largely reflected the capital costs of developing the field and were then incorporated in the 20 year legal agreements with Bord Gáis Éireann Teoranta.

The construction of the Marino Point plant to produce ammonia from natural gas and the cost overruns which pushed the final cost of this project up to £137 million, has been the subject of much examination and controversy in the past including an Oireachtas report in April 1981. The effect of this expenditure, which was largely funded by borrowings, was to leave NET with a burden of debt from which they have never freed themselves despite extensive support from State funds.

The State support afforded has been of enormous proportions. Initially the Arklow plant was funded by borrowings. The Nítrigin Eireann Teoranta Act, 1963, had set the issued share capital at only £100 but provided for State advances of up to £6 million and a facility to borrow £1 million with a ministerial guarantee. In 1970 the company was put on a more commercial basis when the share capital was increased to £7.5 million, including £3.5 million in the capitalisation of State advances, and the limit for loan guarantees increased to £2 million.

As the construction of the Marino Point plant advanced the share capital was increased in 1977 to £27.5 million and the limit for State guarantees increased to £30 million. By 1981 it was necessary, because of the company's dire financial situation to come back to the Oireachtas to provide another £100 million for NET, £50 million by way of additional equity and a further £50 million in State guarantees for its borrowings. In 1987 with the setting up of the joint venture with ICI, the old core debt of over £160 million was left with NET and, as senators will recall, legislation was introduced to increase the limit for ministerial guarantees on NET's borrowings from £150 million to £180 million to enable the issue of a State guarantee for the full debt.

By the early 1980s it was clearly recognised that because of the cost overruns and operating losses in the early years of the Marino Point plant a substantial part of the NET debt was a sunk cost which could not be expected to be recovered. The overall size of the debt and the costs of servicing it were such as to keep the future of NET's fertilizer business and that of its employees in constant jeopardy.

However, the future of the business was safeguarded with the formation of the joint venture with Imperial Chemical Industries in 1987 whereby NET's fertilizer businesses at Cork and Arklow and ICI's Richardsons Fertilizers at Belfast were transferred to the new joint venture company, Irish Fertilizer Industries Ltd. NET's old core capital debt, most of which was guaranteed by the State as you will recall, was left with NET. As a result of these arrangements Irish Fertilizer Industries and the future of its workforce is no longer under any threat by reason of the debt which has been left with NET. This is an important point to put forward.

Under the joint venture arrangements NET took a 51 per cent shareholding in the new company with ICI taking the remaining 49 per cent. In addition NET entered into a long term agreement with IFI for the supply of its gas allocation at an arm's length price to IFI. The old accumulated NET debt, which was £164.6 million on 30 September 1987, remained with NET with the intention that NET would service the borrowings involved from its income from profits on the sale of gas to Irish Fertilizer Industries Limited and dividends from that company. Since 1987 therefore NET's primary activity has been the management of its debt portfolio as well as managing a gas contract and monitoring IFI. It is basically now a financial holding company.

While the new joint venture company, Irish Fertilizer Industries Limited, has operated quite profitably since it commenced trading on 1 October 1987, the combined income accruing to NET from its profits on the sale of gas and from dividends from IFI has been insufficient to fully cover the interest payable on NET's borrowings. The shortfall in interest has had to be converted into new State guaranteed borrowings with the result that overall borrowings have continued to grow and have now reached £180 million. This is the maximum that may be guaranteed by the State under the provisions of the Nítrigin Éireann Teoranta Acts.

The following figures I think illustrate the situation — at the setting up of the joint venture in 1987, the debt remaining with NET, after working capital adjustments, was £164.6 million. Over the ensuing five years ending on the 30 September 1992, on a cash flow basis NET received a net income of £70.9 million from IFI but the interest payments on its massive debt over those five years amounted to £85.2 million — a shortfall of £14.3 million. The addition to this shortfall of operating expenses left NET with a closing debt of £179.9 million on 30 September 1992.

The principal reason for the shortfall in NET's income and the consequential build up in its debt, has been the comparative weakness over recent years of oil prices in Irish pound terms. It is on oil prices that the basic price that Irish Fertilizer Industries pays NET for its supply of natural gas is based. While the economy at large has benefited considerably from the reduction in international prices, in Irish pound terms, for oil, the reverse has been the case for NET. NET's financial flow has been dependent on four very volatile elements. These are fertiliser profits, interest rates, the dollar/pound exchange rates and international oil prices. The behaviour of the three latter elements over the past five years has proved less favourable to NET than earlier expected. Senators will be aware of how volatile these indicators can be.

There was, in fact, a slight improvement in NET's financial situation during 1991, with oil prices high because of the Gulf War and more buoyant prices for fertilisers. However, the position severely deteriorated from the beginning of 1992 with oil prices dropping to their lowest in Irish pound terms since 1987. Therefore, the basic gas price payable by Irish Fertilizer Industries was consequently the lowest in five years. With only a marginal reduction in the purchase price payable by NET to Bord Gáis Éireann for gas, NET's profit margin on sales to Irish Fertilizer Industries Limited was severely reduced. At the end of 1991, reflecting the buoyant conditions of 1991, NET's net debt situation on a cash flow basis, i.e., borrowings less cash reserves, had come down to £171 million. However, by the end of September 1992 this had risen to £179.9 million.

Since September 1992 the already difficult position of NET has worsened considerably because of the devaluation of sterling and the currency crisis. NET was affected in two ways: first, because over 55 per cent of its borrowings are at floating rates, the rise in interest rates greatly increased its interest costs and, secondly, because a substantial proportion of IFI's income is dependent on returns from the UK, both by way of sales in Britain and in the returns of its Northern Ireland subsidiary, the devaluation of sterling impacted on the profits of Irish Fertilizer Industries for 1991-92 and, consequently, NET's income from that company.

Because of this worsening situation, NET's borrowing requirements reached £181.6 million by the end of November 1992 and, as the excess over £180 million could not be rolled over into further bank borrowings because of the £180 million legislative limit on guaranteed borrowings, £1.96 million was issued to the company by way of repayable Exchequer advances. This was the maximum that could be provided under the Exchequer advances provision of the NET Acts, but was sufficient only to maintain the solvency of NET to near the end of December, when further major payments became due. In order to enable NET to meet these payments, a grant of £6 million had to be voted for the company in December 1992 to give it sufficient funds to meet interest payments due up to March 1993.

I must emphasise that over these five years, NET's borrowings were covered by a ministerial guarantee as to payment of both principal and interest and if NET were to default on payment of interest on any particular loans as they fell due, the State, as guarantor, would have become immediately liable to pay. A default in any payment by NET would have immediate consequences on its future ability to trade and its solvency with direct responsibility for all its borrowings then falling on the Exchequer.

NET's financial difficulties can be traced directly back in time to the cost overruns, funded largely by borrowings in the late 1970s, on the construction of the £137 million Marino Point plant, which manufactures ammonia and urea from natural gas. In retrospect, while as a result of this investment we have a strong competitive fertiliser industry employing 700 people on this island, it has been at a very high cost to the taxpayer. The current situation is that NET has debts in excess of £180 million with the realisable value of its assets probably now worth much less than that. These assets are its favourable gas contract with Bord Gáis Éireann and its 51 per cent shareholding in IFI. Therefore, it must be recognised that a substantial proportion of its £180 million debt is, as it is known, a sunk cost, which will not be recovered within NET's future income by way of gas price and dividends from IFI. With NET's income over the past five years inadequate to even cover the interest on its borrowings, the rolling over of each year's shortfall in interest payments, into new guaranteed borrowings, only further increases the debt which will ultimately have to be met by the State.

An option that has been considered over the past year has been the sale of NET's shares in Irish Fertilizer Industries Limited. Freed from the old core debt that remained with NET, Irish Fertilizer Industries has been trading very profitably. The Government is interested in discussing with potential purchasers a sale of shares in this highly profitable company, but only at the right price. A number of parties have expressed an interest in that company, particularly since the time that the minority shareholder, ICI, indicated its intention to reduce substantially its fertiliser interests in the UK.

A sale of its shares in IFI on satisfactory terms could substantially improve NET's liquidity situation in the short to medium-term, but this would also necessitate the negotiation of a new gas agreement. It would also remove any conflict that might arise between NET's need to maximise receipts from IFI to meet its short-term debt servicing requirements and IFI's needs to retain earnings to fund future growth. While NET has had discussions with interested parties, no definitive offer was made to them. If such an offer was made, it would be a matter first for the board of NET to consider but ultimately a matter for Government decision.

In the meantime, provision has to be made to enable NET to continue to meet its debts. I must stress that unless this action is taken NET will be insolvent by the end of March, leading to the prospect of responsibility for its £180 million in borrowings and the interest accruing, falling directly on the Exchequer.

Several amendments to this Bill were moved by the Opposition during the passage of the Bill through the Dáil, the effect of which were to provide for an authorised share capital much lower than the £100 million proposed and a limit on guarantee levels much lower than the £200 million proposed. However, the purpose of the Bill is to provide not only for NET's immediate solvency crisis but also, by providing the enabling mechanisms, to put the Government in the position to protect NET's solvency over the next few years. For this reason, the Seanad will note I have not accepted these amendments.

During the Dáil debate, a common issue raised related to the supply of gas to NET and IFI and the question of greater transparency in gas prices. This is a complex question but I feel it should be answered.

As I have already said, the favourable gas contract negotiated by NET in the early 1970s, and covered by legal contracts, is regarded as an asset of NET. There would be no financial gain to the State in setting aside this contract and transferring the benefit from it to another body, as the profit on gas sales is needed to service NET's borrowings which would otherwise have to be serviced from the Exchequer.

As regards Irish Fertilizer Industries, the position is that the company, under agreements executed in 1987, has contractual rights to a supply of gas from NET under a set pricing formula largely based on international oil prices. This gas is put to productive use in that it is used to produce 500,000 tonnes of ammonia at Marino Point. Some 40 per cent of the ammonia is consumed at Marino Point in the manufacture of over 300,000 tonnes of urea and 16,000 tonnes of liquid CO2. Another 200,000 tonnes is used at Arklow which, combined with Irish sourced limestone and dolomite, produces over 500,000 tonnes of calcium ammonium nitrate. A further 100,000 tonnes of ammonia is sent to Belfast. Assuming the value of gas on the basis of the price of heavy fuel oil, the value added by IFI in producing product which would otherwise be imported would be four to five times the value of the gas used or the value of the oil supplanted, if the gas was substituted elsewhere in the economy for oil.

As regards the price paid by IFI for its gas supply, this must remain confidential for commercial reasons. IFI operate in a highly competitive market, both at home and abroad, in an industry dominated by major multinational companies using their muscle to increase market share. The gas price is the main cost factor in IFI's production process. Knowledge formally of a competitor's cost base is the essential information needed to attack that competitor's market, as it enables one to know how far down in price one must go to put a competitor out of business. IFI would have no confirmed knowledge of their competitors' cost bases and should not be put in a commercially damaging position by having their major cost base published formally. In any event, gas prices paid by other industrial consumers in Ireland are not published and accurate comparisons on a one-to-one basis are, therefore, not possible.

Another complicating factor in energy pricing is the excise duty on oil. Prior to the recent budget, heavy fuel oil used by the ESB was subject to an excise duty of almost £16 per tonne, the equivalent of nearly 4p per therm. Gas oil attracted a higher rate of around £44 per tonne or the equivalent of 11p per therm. However, European practice, which has now been enshrined in an EC directive, did not apply excise to oil used as a feedstock or raw material and, consequently, this element was not reflected in European prices for gas used as a feedstock, such as the Dutch F benchmark. If this excise element was excluded, I am confident that we would find that there was very little difference between the price paid over the past five years by ESB to Bord Gáis Éireann and that paid by IFI to NET.

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

Mr. Enright

I welcome the Minister to this House and, on behalf of the Fine Gael Party, I wish him every success in his brief.

This is an important Bill and we will not be voting against it. While we have reservations about it, the seriousness of the situation obliges us to support the general principle of this Bill. If this Bill is not passed by the end of this month, NET will be unable to meet its debts and the company will be insolvent. Therefore, we feel obliged, in the interests of the company, the workers and the country to support an extension of borrowing.

There are approximately 700 people involved in this industry and all of those are located in Ireland where we have a duty to maintain employment at this particular time. The creation of jobs is important but the maintenance of existing employment is also of immense importance. That is not to say that we should maintain jobs simply for the sake of it; jobs should be productive and cost effective. In this instance I hope the Minister will see how employment might be improved and ensure that the overall level of efficiency is examined.

One of the items contributing to the worsening financial situation of the company is the fact that devaluation did not occur at an earlier stage. Fifty five per cent of the company's borrowings are at floating rates and the rise in interest rates increased the interest repayble. It is easy to be wise after the event but during September many people thought it too early to devalue; there was always a hope that some of our European partners might assist us in our currency crisis. We might have devalued our currency in September or October but in January, when devaluation finally occurred, it exacerbated an already difficult situation.

There is also the question of the availability of the gas being supplied from Kinsale and it is important to examine this situation. The Government is faced with the question of whether to import oil to manufacture these fertilisers or to avail of our own natural gas supply. I favour using our own available natural gas supply. I do not object to our natural resources being utilised even at a subsidised price to avoid importing oil.

The Minister outlined in his speech the number of fertilisers produced in Ireland and it is important to bear that in mind. Most if not all of these items would have to be imported otherwise and while we have an existing manufacturing industry we should continue to avail of it. If the agricultural community became totally dependant on imported fertilisers, increased costs would ensue and we do not know what price mechanisms would be used. We would be pitted against huge multinationals and while we have a fertiliser manufacturing industry we should do what we can to retain it.

The Minister mentioned the question of the sale of shares in IFI. I am not certain how that is going, whether it is being actively examined at present and whether IFI shares will be sold. All I can say is that if the sale of IFI shares is being considered I hope lessons will be learned from mistakes made during the last few days over the sale of shares in Greencore. I say that in everybody's interest.

I am not trying to score political points but when the Government is selling or considering selling shares, it is important in Parliament and nationally, that we do not become involved in internal wrangles and debates detrimental to the country. People who might consider investing here may be deterred by the internal wrangling taking place in relation to Greencore.

The Government is in its early stages, but it behoves each of us to present ourselves as a nation first and foremost. We have a duty when representing Ireland abroad to do so in a unified manner rather than in the manner of the past few days.

In regard to this the overall level of borrowings has vastly increased from £7.5 million in 1970. This cannot continue. I support on this occasion this enabling measure to increase the company's borrowings but borrowings cannot continue to rise indefinitely. The situation must be examined to see how this debt can be curtailed because otherwise it will sink Nítrigin Éireann Teoranta.

We have a number of short amendments to this Bill but overall we are not opposing it.

Professor Hillery

I welcome the Minister to the House on his first visit to the new Seanad and wish him well.

The Bill is hardly the most cheerful to come before the House but it is necessary for all that. NET as a company has a long, contentious and troubled financial history. The Minister has referred to some of the factors that have contributed to that, not least the severe competition in the fertiliser industry together with the major over-runs in the construction of the plant at Marino Point in the 1970s. This has been very expensive for the taxpayer in turn. That is the negative side of it.

Following the establishment of this company we now have a strong, competitive, indigenous fertiliser industry providing 700 valuable jobs at a time of severe unemployment. Some 500 of these jobs are spread between the Arkow and Marino Point plants and the remainder in Northern Ireland in the new joint venture between NET and Imperial Chemicals, namely Irish Fertiliser Industries.

The cost of Marino Point — I was a member of the Oireachtas Committee that analysed its over-run — was £137 million. Construction was bedevilled by a number of problems, not least unofficial strikes, and it is heartening to note that now and for several years past we have had a much more stable, orderly and acceptable industrial relations environment. Unofficial strikes have greatly diminished in number compared to the 1960s and 1970s. We went through a recession and encountered severe competition during the 1980s which brought a new realism to bear on both employer and trade union behaviour in industrial relations. Prior to 1987 — before the joint venture between NET and Imperial Chemicals — the future of the industry and the jobs it provided were under threat. Therefore, the joint venture — 51 per cent to NET and 49 per cent to Imperial Chemicals — was particularly welcome. An important beneficial effect of the joint venture was to safeguard the industry and the jobs. A major outstanding problem was the old debt which, as the Minister pointed out, was in excess of £160 million and is now £180 million. Since 1987 NET's financial holding company has three functions; first, to manage the debts guaranteed by the State, and hence the relevance of the Bill today, second, to manage the contract with Bord Gáis to supply gas at a profit to Irish Fertilizer Industries and, third, to monitor its own interest of 51 per cent in Irish Fertilizers.

It is good to hear that Irish Fertilizer Industries is trading profitably and is a very healthy company. However, NET's present income derives solely from dividends from Irish Fertilizer Industries, and at the best of times the fertiliser industry is cyclical, thus, profits will go up and down; on the one hand, dividends provide an income and, on the other, there are the profits from the gas contract. I can see why the Minister does not wish to disclose for confidentiality and competitive reasons the price paid to NET for the gas by Irish Fertilizer Industries. My guess is that Irish Fertilizer Industries probably pays the going rate for energy supply in European fertiliser plants. However, I accept the Minister's reasons for not divulging the cost of the gas from NET to Irish Fertilizers.

The income from dividends and the profit on the gas contract have not been sufficient over the past five years to pay the interest on the debt, not to mention any capital repayments. Therefore, this Bill is both timely and very necessary because the financial support it provides will be required by the end of this month. The Bill provides for an increase of £22.5 million in the authorised share capital, bringing it to a limit of £100 million, and the borrowing limit is being increased by £20 million to a total of £200 million guaranteed by the Minister. Without doubt the debt is large and I agree with the previous speaker on that. To add to the difficulty, as the Minister underlined, NET operates in a volatile and turbulent environment, which is subject to cyclical movements. The interest rates on the debt have been very high for some time. It is in the interests of both NET and the economy generally that we do what we can domestically to reduce interest rates and, hopefully, in the international markets things will improve on that front.

The dollar-pound exchange rate is adverse from the company's viewpoint but the present low oil prices also affect NET. Low oil prices are very welcome for the economy as a whole but we are concerned with their specific impact on NET. The price of oil is linked to the price of gas; low oil prices dampen the price of gas and, therefore, the profit gained by NET from selling on to IFI. In addition, since September the devaluation of sterling and the currency crisis have added to the company's difficulties. A range of pressures combined to necessitate in December 1992 a £6 million grant being voted to cover interest payments to the end of March and thus to keep NET solvent.

With regard to the sale of the company I am sure that the Minister and his Department are monitoring possibilities. The 51 per cent shareholding in IFI is valuable but there is no point selling unless the right price can be achieved. In terms of the national interest as well as the interests of NET, the Minister and his Department will take all relevant factors into account should a suitable purchaser come on the scene to buy that 51 per cent. It would involve a renegotiation of the gas contract and that is an intricate matter.

The bottom line for this Bill is that it is essential to keep NET solvent. If there is no action from this point forward the company will become insolvent and liability for the debt will eventually fall on the Exchequer and the taxpayer. Therefore, it makes for logic and common sense to pass this legislation as speedily as possible and thus keep NET solvent.

Mr. Quinn

I join with Senators Hillery and Enright in welcoming the Minister to the House. On one occasion after taking note of my height, the Minister said he liked to speak after me because he did not have to lower the microphone.

What we are discussing is a gamble that has not paid off and we are now being asked to pick up the bill for errors of judgment made in the past. The intention was that the fertiliser business would be floated off to a new company, unencumbered by debt, and would trade in the real world. The original NET company operate on the basis of one asset and one liability — the liability of the debt and the asset of the gas contract with the fertiliser company.

The gamble we took in 1987 was that the profit from selling the gas to IFI combined with the profits from the joint venture company together, would be enough to cover all the interest on the debts NET had incurred over those years. That has not worked due to misfortune, misadventure or, dare I say it, even mismanagement. We are being asked to pick up the debts because this gamble has not paid off.

Since 1987, neither income from the gas contract nor dividends from IFI was sufficient to cover NET's debt. On the one hand, the profit from selling the gas was less than expected because of low world energy prices and on the other hand, profits from the fertiliser trading company were much lower than expected. These factors have caused this problem.

The gamble has failed and what I am quarrelling about today is our response to that failure. Instead of facing up to the fact that this arrangement is clearly not going to balance the books nor is it ever likely to do so, we are proposing to continue that arrangement by injecting, as is proposed in this Bill, another shot of State money and telling NET to try again.

This Bill has been rushed in at the last moment, understandably, to prevent the almost imminent insolvency of NET. However, it puts a gun to the head of the Oireachtas. When the Bill is passed all the urgency and energy will disappear and with it will go any desire to finally resolve the problem. We should not be passing this Bill; rather we should be facing up to the fact that the last creative solution of 1987, if I might call it that, has not worked. This Bill does not regularise the situation. It does not tidy up the matter and it does not even put the trading company back on to an even keel. We should and could do all these things and let me explain how I propose we could do them.

First, we should abolish NET. There is no reason for its continued existence. The Minister in his speech said: "Since 1987, therefore, NET's primary activity has been the management of its debt portfolio as well as managing a gas contract and monitoring IFI." I suggest that is its only function. Therefore, we could abolish NET and transfer its share in the join venture in IFI to the State. I am not talking about abolishing IFI. I am talking about abolishing NET and transferring its share to the State. I am not sure which Department should deal with this transfer, but the investment could then be controlled directly by the relevant Department instead of what is proposed at present. The dividends from the company can flow directly into the State coffers rather than into a holding company like NET, and they would then appear in the Estimates.

Secondly, NET's other asset, the gas contract, should be transferred to Bord Gáis Éireann. They should sell the gas directly to the trading company, to IFI. They should pick up the profit directly on behalf of the State and then remunerate the State accordingly by means of a dividend.

Finally, NET's debts should then be transferred to the State and accepted as the liability it clearly is, a debt we are not going to recoup. The debt, as I think the Minister has in mind, could be managed directly by the National Treasury Agency instead of on a secondhand basis as is proposed.

Essentially, the only justification for having a holding company is if it is viable and can actually cover its debt. Since NET cannot cover its debt the justification for its existence disappears. My proposal would mean a clean slate all round, something we hoped for on the last occasion but did not get.

With that clean slate the trading company, IFI, whether the State keeps its share in it or, as has been suggested, sells it on, would finally emerge from the shadow of this large mountain of debt. The company would then be able to trade on its own merits. The people who work in IFI would then be able to concentrate on the future of their own company and they would not be thrown off course by debates such we are having here today about a holding company that has now become almost totally irrelevant. If the trading company is viable in the long term, and I believe it is, then its viability will be clear to all.

There are many things we cannot do at this stage. We cannot, for instance, rewrite the policy that has poured a quarter of our natural gas resources into the production of fertiliser at a price only a fraction of the open market price. We cannot get back the State's huge investment in NET. We cannot, now or in the future, realistically expect that the trading company will produce enough profits to pay off the interest on the huge mountain of debt that exists. What we can do is to put things straight. Once and for all we could stop sweeping the problem under the carpet. By not dealing comprehensively with the matter now it means the problem must come before the Oireachtas each time there is an emergency. Then we use the big stick and say if certain things are not done jobs will go. Those are the words we are hearing today. The truth is there is no reason for the jobs in IFI to be entangled with the financial morass that has happened here. Our task today should be to clear away that morass and not to further entangle the State. I believe we can do that if we adopt the proposals I have made.

Mr. Farrell

Ba mhaith liom fáilte a chur roimh an Aire Stáit go dtí an Teach seo. I also congratulate him on this Bill. It is never a pleasant job for a Minister to have to introduce a Bill to raise money to safeguard companies but the fertiliser industry is important to this country and it is important to retain jobs. If this company was allowed to collapse and 700 people lost their jobs we would have had cries from all quarters asking why the Government did not step in and do something.

Senator Quinn spoke about the Government taking a gamble. At the time the Government probably thought they were making a good deal and that profits would repay the debt and the interest. Unfortunately that has not happened. It is easy to be wise with hindsight. I look at the matter in a practical way. namely, if 700 people were to lose their jobs the cost of importing fertiliser, and the cost of redundancy would far outweigh what is now proposed. While it may be regarded as a stop-gap measure we are keeping the company afloat until better times. I have always said the Government should try to keep companies afloat and perhaps it should attempt this more often. Closing down a company is like the county council putting tenants out on the street if they cannot pay the rent or mortgage. It is very foolish because they will have to rehouse them. If the Government closes down an industry the taxpayers have to pay the workers their social welfare entitlements. Only last week there was so much ado about jobs being lost in Galway, which is very sad. The only good news during the week was the announcement of a number of new jobs in the computer industry. The same week in my own little village we opened a new factory which created 37 new jobs, the only factory of its kind in Ireland, and with the most modern machinery in Europe. I was very disappointed that RTE did not consider it worth its while to send a crew to cover this good news but it sent three crews to Galway and another crew around the country publicising bad news. That is a pity because with the exception of Gay Byrne, Joe Duffy and Pat Kenny, RTE seems hell-bent on promoting the worst possible news to demoralise society. That is sad because a little factory in Grange creating 37 jobs in a village that already had over 200 people employed was big news. Such is the way the media operate.

I see from the Minister's speech that the new joint venture company, Irish Fertilizer Industries Limited, has operated profitably since it commenced trading on 1 October 1987 and that the combined income accruing to NET from its profits on the sale of gas and from dividends from IFI has been insufficient to fully cover the interest payable on NET's borrowings. Maybe in the transfer NET should not have had to carry the full debt. They took over a clean slate and, while it is easy to see with hindsight, perhaps at that time it was the best deal possible.

This Bill should have been brought in two or three months ago when it might have been possible for the Minister to appoint a task force to examine the situation. Now our back is to the wall and the Minister's move is timely as we cannot afford any more bad national publicity or to let an industry close.

Where huge tax bills force private companies to close, the Minister should enable the companies concerned to pay the tax bill over a longer period or to put it on hold. I have seen banks putting accounts on hold and stopping any further interest because half a loaf is better than no bread. In many facets of Irish industrial life we should ask the Government to be more vigilant and helpful because we cannot afford to lose any more jobs. We must ensure that every job we have now is retained and that more are created. We are all in the one boat. We must preserve our good image and prevent further liquidations.

We have received too much adverse publicity over the last 12 months that has damaged industry and has destroyed the morale of many good businessmen. We must not allow this to happen; we cannot allow anything to close down. I thank the Minister for bringing in this Bill and I support it fully. We must safeguard jobs.

Mr. Dardis

I thank the Minister for his attendance here today.

The Bill before us is not a pleasant one. We have to ask ourselves certain fundamental questions. "Are we going to follow a series of bad decisions with one more?" Easy decisions may not be the best decisions even if they are expensive. I concede that in this case we are faced with some tough decisions given the employment content of what we are discussing. The Minister mentioned the need to protect solvency and said that if we get to a point of £180 million plus interest, the company will be insolvent by the end of March. The question is whether it is a State function to protect insolvency rather than to create solvency?

What is the Government's broader policy with regard to the future of NET and will the legislation before us today allow the implementation of such a policy? The answer to that question is probably that we do not have a sense of a broader policy in relation to this and other matters. It is appalling that over the past two weeks legislation coming before the House has in one instance asked us to give more money to the National Stud and this week we are being asked to give more money to Nítrigin Éireann Teoranta. I do not say it is wrong to give money to either of those worthy bodies but it is symptomatic of a broader economic disease that we come into this House regularly seeking more money for this, that and the other. Is that the right thing to do?

In the past we had to take B & I's losses on board so that we could dispose of the company and that was the right decision. However, is the State going to be asked to absorb growing amounts of debt and, at the end of the day, be forced to dispose of the company at a knock down price to somebody with no interest in the Irish economy, in Irish agriculture or in Irish jobs? It is in that context that we need to discuss this Bill. The Minister must pursue a clear legislative approach which gives expression to the implementation of policies rather than continue with recent measures which are not in the interests of the taxpayer.

I take the point that 700 jobs are at risk in Marino Point. If we created confidence within the economy we might be able, using our own resources, and without having to find this type of money, to sustain those 700 jobs and to create extra jobs.

I agree with Senator Farrell's remarks about the bad news aspect of life which we seem to have with us all the time. We could do with an injection of confidence which would lead to the creation of extra jobs and a greater degree of self reliance. Does this type of legislative measure generate the confidence we want and the self reliance we need?

As the Minister said, the Bill is designed as a short term measure allowing the State to put more money into a company which has the capacity to absorb huge amounts of scarce resources while at the same time providing little return for the taxpayer's investment.

The crisis in NET cannot be dealt with in the way we are dealing with it today. Income accruing to NET from its profits on the sale of gas and from dividends from IFI has been insufficient to fully cover the interest payable on NET's borrowings. Is that symptomatic of good financial management by the State and its agencies? The Minister said that over the five years from 1987 to 30 September 1992, on a cash flow basis, NET received a net income of £70.9 million from IFI but the interest payments on its massive debt over those five years amounted to £85.2 million, a shortfall of £14.3 million. Is that good business or good financial management? How can we allow these situations to develop where the State must take losses on board?

I accept the point that NET is a debt management company. Nevertheless, to use our gas in the production of 500,000 tonnes of ammonia, without a return, is bad business. The Government needs to take a more long term view of this.

I do not think the company will ever be able to repay the £180 million owed and this will lead to the State investing more than £0.25 billion in the company. That is an enormous investment. Will it be £0.25 billion for NET, £0.25 billion for Aer Lingus, £0.25 billion for the B&I and so on? Where will the money come from? How do we fund it? As Irish taxpayers are being asked to pay these bills they are entitled to expect these companies to be well managed with the maximum commercial return for the benefit of the employees, the country and themselves. There is little evidence that we are prepared to make some difficult and necessary decisions about these matters. It is a questionable area of State activity and one where continuing State involvement gives rise to serious concern.

At one time we might have regarded it as important to have an indigenous State fertiliser industry and one could have argued that we were securing supplies for the agricultural industry and for farmers and that we were giving them value in what they were applying to their land as fertiliser. Perhaps there was a degree of thinking that it would have been appropriate to subsidise it to some extent so as to generate extra output, extra production and more jobs.

According to my information, nitrogen requirement in 1970 was 80,000 tonnes of nutrients; by 1986 this requirement had peaked at 375,000 tonnes. However, if we study the Common Agricultural Policy reform, the environmental movement and the way agricultural practices are changing to more environmentally friendly systems of production, it is unquestionable that the amount of nutrient being applied to Irish and European land is going to fall. In Holland the application of nutrients is regulated by law to protect water courses and the environment. I am prepared to concede that this does not apply in Ireland.

As European and worldwide industry are able to produce nutrients more cheaply for the farming consumer, it is questionable whether the production of fertiliser at the Marino Point plant has a viable future. This is something we must address. There has been major restructuring of the fertiliser industry. I believe there is over-capacity worldwide and that plants in some parts of the world are not in operation. The future looks bleak for this industry.

The ammonia and urea plants at Marino Point were originally budgeted to cost £63.5 million. However, after long delays it cost £137.3 million, double the amount. This brings us back to the old question: does the State get value for the money invested on behalf of the taxpayer? This type of overrun is a disaster on a grand scale and it would be virtually impossible in those circumstances for Nítrigin Éireann to become a viable commercial company.

The millstone of debt around the neck of NET was already of crisis proportions and it led to a further State investment of £50 million in share capital. Unfortunately, that had little effect in turning the company around. Will we be back here in a few years time looking for money and defending it on spurious grounds? Who are the beneficiaries? One could argue that in the past Irish agriculture was a beneficiary. Unquestionably, the 700 employees are beneficiaries. I can understand the philosophy which says that those jobs must be protected and defended. However, the net benefit to society at this stage is questionable.

NET's main functions are to manage the debt, purchase gas from BGE and sell it at a profit to IFI. The cost of this deal to BGE is staggering. It is an incredible form of subsidisation of NET. Is this a proper use for the gas? A search was undertaken to find a partner for NET in the fertiliser industry. IFI is a joint venture company owned by NET and ICI. IFI is one of three leading suppliers of fertilisers to the Irish market. However, with a total production of 2.5 million tonnes, it is also a key supplier of ammonium nitrate to other Irish fertiliser blenders. On the surface, this seemed a straightforward deal which would benefit NET. However, the truth may be different. According to Culliton, the price NET paid for the gas was one-third the price paid by the ESB and only one-fifth of the price paid by the industrial and residential consumers of natural gas. If we consider transfer pricing between one agency and another it could lead to a discussion about money disappearing down a drain. We keep coming back to the point of monitoring and who exercises control on behalf of the taxpayer. Is it possible to estimate the cost to the taxpayer of every bag of fertiliser produced in the country? That figure could be high and I imagine it is.

There is little point repeating some of the arguments made in the Dáil. However, one thing which has changed since that debate is Greencore and what is to happen to it. Certain things which could be said about this. What was done originally with Greencore was very prudent and good financial management by the State. It set the company on a sound financial footing. Now, however, it urgently requires an injection of capital. If it is proposed to sell all or part of the Government's investment in it, that is to be welcomed provided that safeguards for large growers and the golden share are in place. This type of activity serves as a useful model and could possibly be taken on board for NET. Who would buy Nítrigin Éireann Teoranta? Would anyone? Many people have looked at it, but with a fertiliser market which is likely to contract as a result of over-capacity within the industry, can we expect someone to take over the company, lock, stock and barrel? The answer to that may not be encouraging.

There is one final point I wish to raise with the Minister. I understand the lease of the Marino Point plant to IFI is at a nominal figure. I also understand that in the accounts there is depreciation of about £12 million to £14 million. That is what it is costing NET and it is entered as cost of sales. Is NET responsible for all the debts and all the depreciation, while other people are benefiting from this plant and NET's debt keeps increasing to the point where we have to continually come back to this House and the other House to fund it?

There are fundamental questions we must ask ourselves about our policy on agencies like this and the way the State manages those agencies to the benefit of the taxpayer. We should ask whether we should seek these sums of money at all and we should question the amounts we are seeking. Perhaps we should be looking for smaller amounts and then try to arrest the ongoing haemorrhage in this company.

Mr. Maloney

With other Senators who have spoken today I welcome the Minister to the House. I wish him well in both jobs he has been selected to do.

To me this Bill is about jobs. As others have said today, in the present climate we must strive to protect what we have. Following losses of almost £20 million in 1986 and accumulated debts of £140 million, in 1987 the Government decided to seek a partner so the remaining jobs in NET would not be lost. Nítrigin Éireann Teoranta as a State-owned company was unfortunate to be hit by a massive downturn in the world market for its products in the 1980s. This saw a reduction of capacity with plant closures in the chemical industry throughout the world.

The fact that NET was State-owned was incidental to the problems faced by the company in attempting to generate sufficient profits merely to prevent its debt rising. Fortunately, ICI at the time were interested in expanding operations in Ireland. Otherwise the Government would have been faced with the choice of continual equity support for the company in order to prevent its closure with no prospect of long term viability without access to new markets.

Irish Fertilizer Industries, in which NET has a major shareholding but which in effect is run by ICI, is now a holding company for the debt incurred by NET. Dividends from Irish Fertilizer Industries service this debt. ICI made consistent losses in its fertiliser division even though Irish Fertilizer Industries continue to report gross operating profits from 1988 onwards. Fertiliser prices improved in 1990 because of additional demand in eastern Europe which reduced the over-capacity that hitherto depressed prices in Europe. Nevertheless, the company made a profit of only £6 million on a turnover of £133 million, including the Richardsons business in Northern Ireland.

ICI decided in 1991 to withdraw from Irish Fertilizer Industries because of the lack of profitability not only in fertilisers but in chemicals generally. It decided to concentrate on pharmaceuticals which posed a threat to the 700 jobs in IFI. In fact, ICI wanted to dispose of their stake in its UK fertiliser interests since 1990 but ran into difficulties with the UK Monopolies Commission. Originally it had hoped to sell its UK business to the largest operator in Europe, the Finnish Company Kemira. Had this been accepted, ICI would have offered its stake in IFI to Kemira.

There is an option in the IFI shareholders' agreement that NET would have to be given first option on the disposal of the 49 per cent stake. However, the operating profits of IFI have not been sufficient to allow its total debt to be reduced. The prospect for fertilisers in terms of stronger price growth in the 1990s means a partner can be found without surrendering a State shareholding in the Irish fertiliser industry. The key attraction for any buyer taking up the ICI shareholding is undoubtedly the favourable gas price of 6p per therm it has with Bord Gáis Éireann, which sells this onto IFI with a mark-up of 115 per cent. This is well below the price the ESB must pay and is a key to profitability, particularly for the operations in Cork and Arklow.

By and large, the experience with ICI has been a positive one, but the clauses inserted in the shareholders' agreement, which give the Irish Government a veto on the disposal of the ICI stake, carry important lessons. The Government can delay the sale of the ICI stake until a suitable partner is found. I suggest suitable means a partner of sufficient scale, with enough marketing and distribution outlets to avail of the new opportunities in the Single Market and in Eastern Europe. Given that the Irish Government has incurred heavy expenditure and losses when the fertiliser industry was in the doldrums, it is prudent to allow for an increase in guaranteed borrowing and in the authorised share capital so that no premature sale takes place. NET has successfully developed a number of products which can enjoy increased sales once we get out of the current recession afflicting the whole of Eastern Europe.

It would be extremely shortsighted if we took the approach suggested in the Progressive Democrats and Fine Gael amendments, which artificially restrict the level of borrowing without reference to the current poor trading conditions in the market-place. The failure of NET to service its debt would jeopardise the ongoing negotiations about ICI's 49 per cent stake in IFI. Unfortunately, this is a pavlovian response with which the Labour Party is all to familiar. When Allied Irish Banks needed the support of the State in the Insurance Corporation of Ireland debacle, the Labour Party did not sit on its hands out of ideological pique. Instead, we backed proposals to ensure the viability of the bank, put forward by the then Minister for Finance and current Leader of Fine Gael, Deputy John Bruton. In fairness to Deputy Bruton, he was the architect of the financial package which allowed NET to survive and he accepted the Labour Party's view that the State would have to protect the investment in the national interest and the remaining employees of NET in Arklow and Cork.

I am genuinely at a loss why this modest Bill, designed to protect the investment made on behalf of the Irish people and to secure employment, should be opposed. I commend the Bill to the House.

Mr. Enright

It is not being opposed.

Mr. Maloney

I hope it will receive the backing it deserves.

Mr. Norris

I have a few brief remarks to make. I regret to say they will be largely negative. I share the concern some people have expressed about the use of our natural resources, including gas, in that they are apparently to be applied in a manner that requires State subsidy and does not yield anything whatever to the State in revenue. It may yield something in jobs but I understand the labour content of this operation has been steadily dwindling.

I question the degree to which this is a good investment, either in money by the State, or of our natural resources for this function in the chemical industry. I draw the attention of the Minister to the experience of the United Kingdom Government which has similarly dissipated that country's natural resources from the North Sea. That is my first difficulty with this proposal. I am not convinced of its efficiency, either in the financial sense or in terms of jobs.

I also question the extent to which nitrogenous fertilisers will continue to be important. They carry certain environmental risks and are not environmentally friendly. In a number of countries throughout the world they have been seriously over-used and there is a move in the direction of returning towards more environmentally and ecologically friendly methods of farming. They are a quick solution and I do not know that it is necessarily what one would want to encourage on a wholesale basis.

In addition I express a more serious reservation regarding the general ecological and environmental situation as far as this company is concerned. I want to ask the Minister a couple of questions on this matter. For example, considering that there is an apparent intention on the part of the State to subscribe to some of this new share capital, in other words to invest in it, in addition to giving the company greater flexibility to attract further funds of its own, is the Minister satisfied that this factory in Arklow meets European Community standards in terms of the emission of noxious gases and other elements? I understand that until quite recently this was not the case and that there was a serious pollution problem particularly noticeable in the area around Shelton Abbey which is a historic seat and a beauty spot. Can the Minister reassure the House that a condition for the granting of these facilities will be that the impact upon the environment of the continued processing of chemicals in this factory will be monitored? I also seek an assurance that the appropriate European standards will be applied because I understand that in the past these standards were not applied.

The modification of smoke stacks and processors will require a considerable amount of capital investment and this would be a better application for State funds rather than providing additional capital for redevelopment of a company in ways that are not particularly environmentally friendly. I recall a provision called BATNEEC — the best available technology not exceeding excessive costs — in the Environmental Protection Agency Bill which seemed a rather dangerous philosophy. What constitutes a tolerable level of pollution from factories such as this? One has to be sensitive, particularly in these days when there has been a number of employment calamities involving companies and when people are faced in a very human way with the tragic prospect of losing employment. In a comparatively small town like Arklow a major industry like this is an important employer. At the same time I am concerned that this factory does not meet the appropriate standards and can the Minister give a reassurance regarding this? I am prepared to be corrected if standards have been met but if the Minister is not able to reassure the House that. the factory does at the moment meet these standards, will he give an assurance that, as a condition for the granting of this financial facility, the factory will be required to move further in the direction of being environmentally friendly?

I notice as a consumer of transport that I am frequently stopped at most awkward times by these ghastly ammonia trains that I presume are heading towards Arklow. The rolling stock appears to have come out of the Ark. Is the Minister satisfied that this highly dangerous chemical is being transported safely and there is no danger of an accident during transportation?

I said I would be brief and uncharacteristically I am going to live up to my promise and sit down, having also uncharacteristically ended on a positive flourish. I question some of the provisions of this Bill and I hope the Minister will be able to give me satisfactory answers. My experience of the Minister in the House is that he can usually do so. The positive and beneficial atmosphere of co-operation between ICI in the North of Ireland and in the south is to be welcomed. If there were more of this co-operation at the fundamental, basic, practical level of business, of job creation and promotion, we would move towards a much more harmonious island at a satisfactory speed. I look forward to the Minister's reply.

Mr. McGowan

I welcome the Minister and the Bill. I am pleased that Nítrigin Éireann is playing a major role. We would fully appreciate its role if we were totally dependent on outsiders for the basic materials that Nítrigin Éireann are providing. I am happy when Ireland invests money in an Irish based industry for the Irish people. Is is easy to criticise anybody, at the farm end or at the business end and complain about what money was spent and what was lost. That is a major international company and it has undertaken an important role in Irish industry.

Senator Dardis said he questioned who would benefit. The basic material needed by the Irish farming sector is secure thanks to Nítrigin Éireann and I am glad the Minister recognises its need to raise guaranteed finance. From my knowledge of a small farm, the Irish farming community has suffered for years because it was unable to buy sufficient fertilisers. The price of fertiliser today is still a factor because it is nearly £200 per tonne. How many people in this House have hands-on knowledge of the cost and the value of a tonne of fertiliser? It is important to recognise the value and the security of maintaining Nírigin Éireann as a strong company. It is a native industry, which provides jobs and is a vital component in the agriculture sector, a fundamental industry that we need to encourage and support.

All too often Irish people have not believed in themselves sufficiently; we subscribed to the mentality that a thing has to be imported or it would not be right. This generation want to believe in themselves and want to create jobs. They want Ireland to develop and there are many opportunities for this but knockers, whether in the media or among ourselves, for cheap political advantage discourage those with the guts, determination and willpower necessary to stay in Ireland and provide jobs.

It behoves us all to recognise NET as a national company prepared to stay in Ireland and to help agriculture, our basis industry. Fertilisers are a fundamental ingredient in every aspect of agriculture and we cannot produce beef or grass without them. Even afforestation requires fertilisers. The Bill is welcome and I compliment the Minister on it. I encourage him to keep in touch with Nítrigin Éireann and to ask it to be mindful of its end product and of the pressures upon those who purchase its produce. It should be mindful of competitiveness and of the ever increasing and escalating cost to those who use fertilisers. It is an expensive cash input of those working on the ground and I ask the Minister to ensure that Nítrigin Éireann sells fertilisers on a competitive basis with the rest of the European farming community. This is an important Bill and I welcome its introduction here.

Mr. Roche

I welcome the Minister to the House and wish him well in his portfolio and like Senator Maloney, in his other responsibility as well.

NET started in Arklow in 1961 and much has happened since then. The company was very profitable while it operated solely in the Arklow plant but profitability declined as the company expanded and especially when it took on responsibility for the Marino Point plant.

In its first 20 years, therefore, NET was a remarkable success. By 1980 employment in the company in the Arklow area alone peaked at 1,150 people. At the end of that year the decision to scale the company down was taken by the then Minister for Industry and Commerce, Deputy O'Malley. The rationalisation programme in NET had a devastating impact. I am going through NET's history because I want to take up some points made by Senator Dardis when he was asking in a rhetorical way what should now be done with NET. We should learn from the mistakes of history how to put this company back on a firm foundation.

The rationalisation programme in NET had a devastating impact on the area of Arklow. Employment in the company's plant at Shelton Abbey was slashed from 1,150 to just 500 people between 1981 and 1983. The company payroll in Arklow was further reduced over the next nine years to 200 people and there are approximately 210 people on the payroll in Arklow at present. Just over 250 people are employed in the Cork plant and with the plant in Belfast the total employment in IFI the new company is approximately 700 people. This company cannot be described as one which has not tried to rectify past mistakes; it is certainly not as Senator Dardis described it.

Between 1980 and the early 1990s Arklow saw the direct devastation of NET's fertiliser plant and NET's withdrawal from a number of other industries in the area. The industrial base of South Wicklow was completely decimated by rationalisation decisions which could not then be avoided. To comprehend the impact of those decisions on Arklow the House would have to imagine a scenario where Digital and two other companies of similar size withdrew from the city of Galway at the same time. Nobody would accept that a Government should allow that to happen and I am surprised, therefore, at the import of some of the points made by Senator Dardis. In Arklow this was a cruel fate indeed.

The Arklow factory cost NET some £6 million to build in 1961. Its expansion over the next 20 years was achieved, largely, on the basis of the company's own performance. In its fundamentals it was a good company; but other decisions had a dire impact upon it. The major problem for NET, Arklow and Ireland was the Marino Point plant. The debacle which occurred in the building of the Marino Point plant is now history and is on the record of one of the Oireachtas joint committees. In comparison with the initial set-up cost in Arklow of £6 million the total cost in Marino Point was £137 million, including roll-ups of interest to the time that plant started operations. If Members of the Oireachtas wish to identify where the problems of NET started or how we got to this stage — I do not think that continuously looking at history is helpful — they should look at the decisions and at the political and administrative blundering of that time.

The second major problem that NET as a company has had to face is our extraordinary tradition in this country of exhorting State enterprises to expand and then failing to capitalise them. They are expected to fund all of their activities by borrowing. Consequently, a number of companies, including this one are so ridiculously geared that it is never possible for them to make a profit or break even.

Senator Dardis queried whether it was right for a Minister to come to this House, on occasion looking for more money. The answer must be "yes"; it is self-evident. It is an entirely good and proper thing that Ministers should be brought before both Houses, by whatever device, to deal with the financial affairs of commercial State enterprises and in particular, the financial affairs of a State enterprise with as stormy a history as this one. Senator Dardis and his party suggested that the company will never be able to repay the entire £187 million debt that has built up. That is probably true but Senator Dardis's speech illustrates an extraordinary lack of understanding of the nature of the problems of NET and the origins of its debt. The debt is a roll up of what happened over the years, not least during the course of the Marino Point debâcle which taught us a costly lesson in the way the public sector manages major investments. The logic of Senator Dardis's point is that the existing company and its work force must be made to pay the cost of past political and administrative problems. That is not reasonable, fair or rational.

Senator Dardis also raised a query regarding the use of gas. The Minister outlined the circumstances which surrounded the use of the gas feedstock by NET. If Senator Dardis wished to find out more about this decision that many people have criticised he could have a word in the shell-like ear of his party leader who as Minister sponsored this policy thrust and was Minister during much of the overspending on Marino Point. Therefore, if Senator Dardis and his party wish to dwell on the past and to score by making self-evident points he should have a word with the political maestro of that time.

I wish to refer specifically to a point made by a number of speakers about the use of gas. IFI makes ammonia in Cork using the gas feedstock. That ammonia is the feedstock in turn for three plants — Marino Point, Arklow and Belfast. These three plants produce 65 per cent of the entire requirements of this island for nitrogenous fertilisers. The IFI venture is, we should not forget, a rational example of cross-Border co-operation. In other for a Senator Dardis and his party would extol the benefits of cross-Border co-operation. Why, therefore, should he snipe at a Bill which aims at helping a company which is the epitome of what can be achieved as Senator Norris said, in terms of cross-Border co-operation?

IFI is now performing well against a background of declining world demand for its product and against a declining cost background. It is worth reminding ourselves that in real terms, the price the company's products are achieving is similar to the prices received in 1985. Against this background, the Bill must be seen by any reasonable person as a welcome measure. It will help to ensure the survival of a company which provides viable employment in a number of areas, not least in my area. It is an Irish venture which gives employment to about 700 people and is involved in the production of a very important element of our agricultural input.

Would Senator Dardis, who should know something about this area, prefer if we were vulnerable to international price fluctuations arising from cartels outside this country controlling agricultural input? We can go back to the early days of NET and consider why the company was set up. One of the reasons was to break a cartel which had a stranglehold on fertiliser costs and inputs into Irish agriculture. Surely somebody with Senator Dardis's background in agriculture would not tolerate a decision that would effectively put us back in that situation.

This Bill will not bring back money which was invested in this company but it will put the company on a sounder footing to face the future. It is a small piece of legislation which achieves something important to agriculture and employment — not least in my county and future constituency of Wicklow. Contributions, from all sides, here and in the Dáil, have welcomed this Bill and seen it for what it is——

Mr. Enright

It pays to advertise.

Mr. Roche

——a measure that should have been taken earlier. I support and commend the Bill and I wish the Minister and the Department well with it.

Minister of State at the Department of Enterprise and Employment (Mr. Brennan)

I thank all the Senators who contributed to this debate on the NET Bill and the request for guarantees and equity. I listened very carefully and learned a lot from what they had to say. Rather than repeat the long explanation I gave introducing the Bill I will try to deal with a number of points which emerged during the debate.

In 1987 an agreement was reached in what was commercial war-time. There was a difficult situation with NET at the time. The losses had mounted dramatically and an agreement was reached with a partner, ICI, which was the best deal available at the time. I have to confess that if it had been commercial peace time, it is not a deal I would sign today but, in the context of the trauma and turbulence in that market and the financial surroundings of NET at that time, it was the best deal available. In retrospect, one can always negotiate a different deal at a different time, but we were not in the best position then to negotiate a tougher deal with ICI because they held all the cards, we needed a partner, the company was in financial difficulties, losses had mounted dramatically and we were very pleased to be able to put a deal together at that time. It is important to mention that because the shareholders' agreement concluded in 1987 is the shareholders' agreement in place today. This shareholders' agreement which will last until 1999 deals with the manner in which gas prices are decided, other shareholder rights, such as are found in any shareholders' agreement, etc. It was not necessarily the perfect deal but it was the best which could be done at the time and the legal aspects of that deal are still in operation.

One must understand the difference between NET and IFI and it is important that the workers at IFI fully understand this. IFI is a separate company owned by ICI and NET, 49 per cent and 51 per cent, respectively; the State owns slightly more than half the company. It is profitable, it is doing well, it is well managed and is meeting its commercial objectives. It is important that the workers in IFI know that there is no threat to IFI, its workforce or management by virtue of what we are doing here with NET.

NET is a separate company; it is a holding company that is not trading. It conducts a number of transactions on behalf of the State but it is not trading in fertilisers in the traditional sense. This legislation deals with the financial arrangements of the NET holding company which, I stress, do not affect the company, Irish Fertilizer Industries, which is a separate company and is doing well. A number of speakers mentioned jobs and this money being needed for jobs, but this is a separate arrangement and is not directly related to IFI. There are indirect connections but I hope I have made it clear that IFI is a separate company, is doing well, is not under threat and is not directly involved with this legislation.

Senator Quinn explained this very clearly. NET is a holding company with two incomes and two expenditures. It has an income in dividends from IFI which it receives as a shareholder and they are under pressure for various reasons; the expected growth is not there. The second income is from selling gas to IFI. It has two heavy expenditures — paying the interest on IFI's enormous debt, which is approximately £180 million, and buying gas from Bord Gáis Éireann. It is a company which deals basically in those four transactions — buying gas and selling it on, making a profit in the middle, receiving the dividends from IFI and paying the interest on the debt.

I have already told the Dáil that I am asking the National Treasury Management Agency to look at that hard core debt and satisfy my Department that this debt is being managed in the best way possible and to assess whether it should be amalgamated with the national debt.

I wish to refer to Senator Quinn's contribution. I welcome the Senator to Seanad Éireann. It is the first time I have been here since the Senator was elected; Senator Maloney is the other new Senator who spoke in this debate. Other Senators have been re-elected but they are the two Senators who have come to the national stage for the first time. I thank the Senators for contributing to this debate.

I am taken with the Senator's proposals and I will examine them. I find them interesting and close to my thinking on the matter. It is not as simple as he suggests because of the legal agreements in place and it is questionable whether it is more transparent to leave matters as they are. The choice is to leave NET as a holding company with four transactions clearly visible on the balance sheet or to close down NET and put those four problems into different Departments. It is arguable as to which is preferable. In the end it does not matter that much because whether we have NET or do not have NET we are still stuck with the accumulated debt and we still have to supply a gas feed to IFI, which is our contractual agreement going back to 1987. We have to supply the gas because we are contractually committed and we have to pay the interest because there are Ministerial guarantees.

I will examine the structures the Senator proposed? It may be better to do it that way. I put it to the Senator that it may not make that much difference. What, I have to do is bring in the National Treasury Management Agency to see whether amalgamating the debt might be better and to continue to examine the gas arrangement to see whether there are any openings for us in that area.

I thank Senator Dardis for his comments. He asked me about a broader policy. I am developing a broader approach to this NET situation. A strategy is needed as to where we go from here. This Bill before us is not a permanent strategy. It is a natural consequence of decisions taken many years ago. In developing that strategy we would include the role of the National Treasury Management Agency and we will look at the future gas strategy and future gas policy, including the ESB and other energy-related matters. I want to reassure all the Senators that NET-related strategy is one I have to develop urgently once we get this legislation in place.

I thank the other Senators who contributed to the debate. Senator Norris asked me about the environmental situation; he is not present at the moment but I will respond to his query. In the past the plant at Arklow could not be said to be fully up to date in terms of meeting rigorous EC requirements. They have now installed three new nitric acid plants which will be open around May and I am assured that these new plants should meet the exacting EC environment standards and my Department will monitor the situation to make sure they do. That is the best I can do in response to the query of Senator Norris.

Senators Hillery and Enright gave their support to the Bill and I thank them for so doing. Senator Maloney spoke about the employment situation and the future of the company. I listened carefully to the points he made and I understand his concerns. I thank Senator Roche for his very detailed analysis. The Senator has a deep knowledge of the plant and the industry. It obviously affects his political base also. I thank Senator McGowan who also contributed to the debate. Those were the main points which were raised in the debate.

I want to make it quite clear that this is not putting extra money into NET or IFI. It is enabling NET to pay interest on the debt. If I did not bring in this Bill, the State would ultimately have to pay this because there are Ministerial guarantees backing up all of this. This simply keeps it in the NET box. The House is not agreeing to additional funds; it is agreeing to have the additional funds provided through the company instead of through the State directly. That is important for the moment because we have a partner in this exercise with ICI.

I do not want to harp on the past. We have to be clear what happened here. In January 1975 the Government of the day received a cost estimate of £62.5 million for the Marino plant. When the plant opened in October 1979 the cost was £137.3 million. The figures tell their own story.

Mr. Enright

What was the cost in 1975?

Mr. Brennan

In January 1975 the original cost estimate was £42 million. By April 1975 a new cost of £62.5 million had been agreed by Government. This involved two Governments and different Ministers. Nevertheless the point remains the cost rose from £62 million to £137 million. Throughout the years before finally restructuring the plant in 1987 losses were incurred. In 1980 the loss was £55 million, in 1981 it was £37 million, and up to 1987, the last years in which NET operated as a trading company, the figure was £15 million. It does not take an economist to figure out how we arrived at a debt of £180 million. It is basically the overruns and losses before restructuring. Restructuring has been successful in that a good fertiliser company is now operating. It has been successful to that extent and we can get a focus on the debt locked into the NET situation.

Senator Dardis asked about the depreciation at Marino Point. That depreciation is charged in the NET accounts and not in the IFI accounts. The plant there is leased by IFI effectively at a peppercorn rent. The depreciation is still there in NET. This was challenged by Members of the other House, particularly by the Progressive Democrats. The depreciation is charged in that way to enable a higher dividend to come from IFI into NET. I acknowledge that it also gives a higher dividend to ICI. That is what partnership is all about.

I thank the Senators for their contributions to the debate. I hope I have responded to the main points. I ask for the support of the House for Second Stage.

Question put and agreed to.

Agreed to take remaining Stages today.