Seanad Éireann - Volume 146 - 20 March, 1996
Irish Steel Limited Bill, 1996: Second Stage.
Question proposed: “That the Bill be now read a Second Time.”
Minister for Enterprise and Employment (Mr. R. Bruton) Richard Bruton
Minister for Enterprise and Employment (Mr. R. Bruton): I am grateful to the Seanad for agreeing to take Second Stage of the Irish Steel Limited Bill, 1996, today. When the remaining outstanding matters are finalised between the State negotiators and the representatives of ISPAT International, it will mark a momentous milestone in the history of Irish Steel Limited and will see ownership of the company pass from State ownership to private ownership.
As the House is aware, Irish Steel's troubles have been ongoing for decades. Successive Governments have invested substantial amounts of taxpayers' money in the company with no return on the funding. Irish Steel has only made profits in three years out of the last 20 and these profits were never of a sufficiently large amount to protect the  company in its years of poorer performance. Its consolidated profit and loss account to the end of June 1995 shows an accumulated loss of some £145 million. The experience over the years has demonstrated that the State was far from the ideal partner for Irish Steel.
The employment level in Irish Steel has dropped from over 1,000 two decades ago to 561 in recent years. In the trading year 1993-94, Irish Steel was losing well over £1 million a month and total losses for the year amounted to over £20 million. Figures for the year to the end of June 1995 show further losses, although on a scale considerably less than the previous year, with losses approaching £6 million.
Irish Steel is a small stand-alone company within a much bigger European and worldwide steel industry. The international steel market the company serves is cyclical and in the early 1990s the steel industry experienced a downturn in both price and sales volumes. Selling prices were lower than they had been for 20 years and raw material prices were high, leading to immense pressure on margins. Most steel companies in Europe found the going tough and as a result, with the support of the European Commission, a massive restructuring of the steel industry in Europe was undertaken. Following the lead taken in Europe and in the light of the huge losses being made by Irish Steel Limited — £13 million on a turnover of £58 million in 1993 — it was imperative that the company implemented cost reductions and restructuring measures.
During 1993 the company unsuccessfully tried to negotiate a cost reduction package with its workforce. A new viability plan was drawn up in early 1994. This was an absolute precondition to the survival of the company and provided for, inter alia, a reduction of 205 workers, the introduction of new totally flexible work practices, the achievement of efficiencies and a pay freeze. There were extreme difficulties in reaching agreement with the unions on the implementation  of the plan. Industrial relations difficulties beset the company throughout the summer of 1994. Following difficult negotiation, which saw the company on the verge of closure on a number of occasions, each of the trade unions and all employees in Irish Steel indicated their acceptance of the company's survival plan. The plan allowed for cost improvements and savings of £8.8 million a year. I am pleased to acknowledge once again the tremendous sacrifices and efforts made by the workers of Irish Steel in the implementation of the viability plan.
The viability plan has been vital in securing a prospect of achieving a viable future for Irish Steel. Without the achievement of cost savings under the plan, it is unlikely that any company would have been interested in Irish Steel and there were considerable doubts that the company could achieve and sustain viability on its own. For example, the European Commission and others expressed considerable reservations about the ability of Irish Steel to provide adequately for the next downturn in the steel markets.
Faced with high losses which occurred in 1993-94 and the implementation of the viability plan notwithstanding, Irish Steel was still not in a break-even situation as a stand-alone enterprise. The board of Irish Steel submitted, on 28 November 1994, a final viability plan to return the company to profitability within three years. This plan included a request for £50 million, including £40 million in equity and £10 million in guaranteed borrowings.
The Government, following discussions with the European Commission, was faced with three options: to seek EU approval for the £50 million State aid package; to close Irish Steel, at a conservative cost of over £40 million or to find a suitable strategic partner who, with experience in the wider international marketplace, would be able to bring their knowledge, marketing and production resources to bear on Irish Steel and turn the company's fortunes around so that it would have the  strength to prosper in the market. In the event, the Government decided in February 1995 that negotiations with the European Commission for approval of State aid to Irish Steel should be on the basis of the £50 million envisaged in the viability plan and that at the same time negotiations could be opened for the possible sale of shares in, and control of, the company.
Following the Government decision, an application for State aid approval was lodged with the European Commission and at the same time I appointed Investment Bank of Ireland Corporate Finance Limited to act as advisers to the State on the sale of Irish Steel. Five parties were quickly identified as being interested in purchasing part or all of Irish Steel. Applications were made by each of these five companies in the first round of offers. It is common knowledge that these five companies were ISPAT International, Riva, Aicher, Nippon Denro and Nucor/Yamato. Each of their offers was weighed on its respective merits. In some cases, companies were even invited to improve on their offers. All the offers, save one, were for the purchase of 100 per cent of the shares in Irish Steel.
A short list of companies was drawn up after the final first round offers were received and a number of companies were invited to submit further more detailed offers. Following receipt of these further offers, the Cabinet subcommittee, comprising of myself, the Minister for Finance and the Minister of State with responsibility for science, commerce and technology, which had been formed to oversee the sale process, selected ISPAT International, following recommendations from my Department and the State advisers, as the company which should be granted exclusivity of negotiation to purchase 100 per cent of Irish Steel. It was considered that ISPAT International had the necessary experience in turning around steel companies. The financial commitments it was proposing were stronger than those of the other bidders.
 During the summer of 1995, ISPAT concluded detailed due diligence with its own professional team, in co-operation with IBI Corporate Finance Limited, Irish Steel Limited, my Department and the Department of Finance. The due diligence process was conducted on the basis of the normal process of disclosures and representations made by Irish Steel, in the main, but also by the State, on foot of which ISPAT decided to purchase Irish Steel. Negotiations with the company continued during and after this process and led to the conclusion of a sale and purchase agreement with ISPAT International on 6 September 1995, which was signed by me and the Minister for Finance, for the sale of all of the shares of Irish Steel Limited to ISPAT International.
As the agreement with ISPAT International involved State aid from the Irish Government amounting to approximately £27.5 million, which included writing off an old Government loan to Irish Steel of £17 million, an application was submitted to the EU Commission for approval of the State aid involved under Article 95 of the European Coal and Steel Community Treaty. The EU Commission accepted the case made by the Irish Government on behalf of Irish Steel and recommended to the EU Council that the State aid for Irish Steel Limited should be authorised exceptionally under Article 95 of the ECSC Treaty subject to certain conditions.
The Commission's recommendation was considered at the EU Industry Council on 6 and 7 November 1995 and while 14 of the 15 member states were in general prepared to approve the State aid involved, the UK refused to give its support. Unanimity among all member states of the EU was essential for the approval of the State aid for Irish Steel under Article 95 of the ECSC Treaty. In view of the UK opposition, the Council of Ministers agreed on 6 and 7 November 1995, at the suggestion of the Spanish Presidency and the EU Commission, that the Irish and UK delegations  should continue to search for an agreement on the matter that could be approved at a later Council meeting.
Following the intensive negotiations I had with the UK Minister for Industry and Energy, Mr. Timothy Eggar, and with the president of the UK Board of Trade, Mr Ian Lang, during the months of November and December 1995, the UK Government withdrew its reservations to the State aid involved in the Irish Steel restructuring plan. This enabled the EU Council of Industry Ministers unanimously to approve the State aid package on 20 December 1995 under Article 95 of the ECSC Treaty. To overcome the UK objections, production caps on finished steel and billets, together with limits on the sale of finished steel products in the EU market, including Norway and Switzerland, had to be agreed by me in consultation with Irish Steel and ISPAT in order to secure the unanimous approval of all the EU member states, in particular, the United Kingdom.
I will now give the Seanad details of the deal agreed with ISPAT International on 6 September 1995 and the changes agreed with ISPAT International following the EU approval secured on 20 December 1995. ISPAT International is to buy Irish Steel for a nominal sum of £1. The sale will be finalised within the next few weeks. The agreement will involve a certain level of expenditure by the State and ISPAT International.
In addition to writing off an old Government loan of £17 million to Irish Steel Limited, the State has agreed to pay £20,273,500 to Irish Steel Ltd./ISPAT International. The State's contribution of over £20 million includes provisions: for charges and expenses identified by ISPAT International in the due diligence process which should have been in the balance sheet of Irish Steel Ltd. for the 12 month period ended 30 June 1995; to fund necessary environmental and other remedial works; for a matching contribution towards an ECSC staff training grant; to compensate the company for  the restrictions on production and sales imposed on the Irish Steel/ISPAT project to overcome UK objections; for an upfront cash payment in lieu of indemnities in respect of possible residual taxation and other costs and financial claims arising from the past; to compensate the company for interest charges on existing debts and provisions to fund a deficit in the staff pension fund.
ISPAT International will invest £5 million in working capital into Irish Steel immediately on completion of the deal. ISPAT International is also committed to a significant level of capital expenditure. This will see investment of £20 million over the next six years, allowing Irish Steel to produce products more efficiently and thus more profitably than at present. These funds will be spent on the re-equipment of the mill and the melt shop.
About half of the capital spend will be devoted to enabling Irish Steel to make higher grade, added-value raw material. Ultimately, under ISPAT International, Irish Steel will produce a more extensive range of finished steel products, which will, because of the higher grades of steel they will be able to make, add to the value of output. In addition, ISPAT International has agreed to maintain production at least at present levels. Furthermore, the deal provides undertakings from ISPAT International to take over all loans, debts and liabilities of Irish Steel with the exception of an old Government loan of £17 million made in the mid-1980s. That will be extinguished by the Government as part of the sale.
Among the issues at the forefront of negotiations has been the Government's concern for the workers of Irish Steel and the protection of their jobs and rights in the new Irish Steel operation. Under the deal, ISPAT International has entered a contractual commitment to employ a minimum of 300 full-time workers in Irish Steel for the first five years of its ownership of the company. ISPAT International has also agreed to honour in full all commitments of Irish  Steel with regard to labour contracts and pension plans.
I am confident Members of the House will agree that this situation contrasts very favourably with the situation 18 months ago when the plant was on the verge of closure with the likely loss of all employment in the company. The contractual commitment with ISPAT International also provides that it will pay to the State specified liquidated damages in the event that the number of full-time workers falls below 300. There was understandable concern among the workforce of Irish Steel and their trade unions that the sale of the company could be prejudicial to their interests and that the job guarantees were not real. I have assured the unions that the guarantees given by ISPAT are real and substantial. I am satisfied that the trade unions are now fully committed to a new Irish Steel in the full ownership of ISPAT International. Indeed, I have been impressed with the management style of the new owners. I am confident that this augurs well for good, professional relations between the new management, the employees and the trade unions.
I take this opportunity to give a brief pen picture of ISPAT International. It is a multinational corporation, founded in India, with manufacturing facilities in Mexico, Canada, Trinidad and Tobago, Germany, the USA, the UK, Indonesia and Kazakhstan for the production of steel and related items. The group is the world's largest producer and consumer of direct reduced iron — that is, iron produced from iron ore. It is also one of the world's largest producers of liquid steel. Prior to its very large acquisition in Kazakhstan, the group employed a total of 6,500 producing more than 6.5 million tonnes worldwide. The total assets of the group exceed US$3 billion and annual revenues exceed US$2 billion.
Most of ISPAT International's acquisitions have been former State owned steelworks in the process of privatisation and it has a proven track record of turning around all its major  acquisitions, usually within a year of purchase. This is rapid by steel industry standards. The Kazakhstan acquisition from State ownership is enormous with some 30,000 employees involved.
Irish Steel will be able to benefit from the experience the new owners will be able to bring to bear and the economies of scale that also derive from a group of such size. The Government is satisfied that with the sale of Irish Steel to ISPAT International, it has achieved the best possible deal for the State, the company and for the workers of Irish Steel.
The legislation which has been circulated to the House is necessary to enable the sale of the shares of Irish Steel Limited to ISPAT to be finalised. The Irish Steel Limited Bill, 1996, is a short Bill with only ten sections, the main purpose of which is to repeal the legislation on Irish Steel passed by the Oireachtas during the period 1960 to 1985 when the company was in the ownership of the State and when it required Exchequer funding to survive. That legislation will no longer be necessary when the shares of Irish Steel Limited are sold to ISPAT. The Irish Steel Limited Bill, 1996, also contains provisions to enable me as Minister for Enterprise and Employment to fulfil the financial commitments agreed with Irish Steel/ISPAT under the agreement for the sale of the shares of Irish Steel Limited. I look forward to discussing the individual sections of the Bill during the Committee Stage in this House.
I commend the Bill to this House and in so doing I would like to thank the very many people who have worked extremely hard and tirelessly to secure the long-term future of Irish Steel. Besides ISPAT International and the workers, I acknowledge the services of the board of Irish Steel and its chairman, the public servants who are often forgotten both in my Department and in the Department of Finance and our advisers. I would also like to thank the Members of the Oireachtas — particularly Senator Sherlock — who have  taken a very keen interest and who have seen the company through a very tense period because their forbearance has stood to us in securing the long-term future of the company. I commend this Bill to the House. It will prove to have been a valuable approach adopted by all public representatives and we will be well served by the result.
Mr. Fahey Mr. Fahey
Mr. Fahey: I welcome the introduction of the Irish Steel Limited Bill, 1996, which will enable the sale of Irish Steel to ISPAT International. Senators on all sides of the House welcome the end of this long running saga. I join the Minister in complimenting all those involved, not least the executives and workforce of Irish Steel who have taken hard knocks in the course of the negotiations and the scaling down of the plant. I also compliment the Minister and his officials.
However, there are a number of disconcerting aspects to this deal, the principal being the cost to the Exchequer, which has risen from £27.5 million last September to approximately £37.2 million now, an increase of £10 million. This appears to be the result of the intervention of British Steel and the British Government. I and my party are very concerned at this intervention and to the objections of British Steel and the British Government to this takeover. This deal was acceptable to the 14 other EU countries, showing it does not offend against the rules of competition. I and my party do not accept that, given Ireland's tiny share of EU markets, and that the British steel industry produces over 40 times what Irish Steel is producing, consolidating Irish Steel's producing capacity could possibly lead to a downturn in the British steel industry or the closure of a British Steel plant. It would be indefensible and very bad competitive practice for the giant British steel industry to be able to close down a tiny Irish steel industry and from the experience of the last few months, that is exactly what the British steel industry tried to do.
 Since the 18th century, British commercial jealousy has greatly retarded Irish industrial development, once excluding Ireland from whole branches of industry. This must never be allowed to happen again. Successive Governments made a large investment in Irish Steel and Fianna Fáil in Government fought against its closure. Writing off debts represents the last Government's input. The maintenance of a steel plant in Ireland is of vital national strategic interest. Britain more than any other country insists on respect for such interests. Therefore, it has to recognise the legitimacy of our wish to keep Irish Steel open.
I compliment the Minister on his success in overcoming the objections of British Steel. I would like him to spell out in more detail why this success has resulted in an increase in costs of £10 million. This should be a salutary lesson to everyone in politics, business and industry. We face stiff competition from across the water. The history of Irish industry shows how our traditional industries have been stripped and transferred mainly to Britain. To see what we have put up with in the past we only have to look at companies like Dunlop and Ford, our clothing and other traditional industries to see that we have lost industry after industry to Britain. We took it on the chin but when one of our more strategic industries posed a minor threat to the major British steel industry, Britain gave us a sucker punch. This should be a lesson to politics and industry. We must be prepared to fight back much more aggressively than we have up to now. Our industrial sector and people must be aware that we face stiff competition. From Ireland's point of view there is a negative balance of payments deficit between imports and exports between Britain and Ireland. It is vital that from now on within the confines of EU regulations we take the gloves off when it comes to protecting Irish industry to ensure its future growth, given our experience in this case.
 I welcome the privatisation of Irish Steel. The privatisation of major State companies does not take place frequently and not usually in the manner of the sale of Irish Steel, the shareholding of which was sold in one go. The sale of Irish Life and Irish Sugar was on a gradual basis. I found amusing the Minister's details of the strategy team involved in this sale. It involved himself, the Minister for Finance and the Minister of State at the Department of Enterprise and Employment, who has responsibility for science and technology. This shows that ideology has gone out of the window with regard to this sale as far as the Labour Party and Democratic Left are concerned. I compliment them for losing their baggage when it comes to the practical realities of the future of business here.
The sale of Irish Steel also takes place against the background of the commitments in A Government of Renewal which stated that:
State assets will not be sold except where it protects employment and is in the long-term strategic interest of the company and its stakeholders . . . We will retain majority state ownership in these companies.
The programme states that change in State companies will be managed in the best interests of employees.
Not least among the reasons for discussing the sale of Irish Steel is that the company has been a major part of this State for nearly 50 years. It was established as a State-sponsored company in 1947. Its role was to supply the domestic and export markets and it quickly became a major employer with 566 people employed in June 1993 when the last rationalisation plan began. The steel industry worldwide is cyclical and Irish Steel was no different from any other producer in Europe. It enjoyed good times and many bad times. In the years after its establishment it enjoyed reasonable success and it had a boom period during the 1950s and 1960s. However, in the 1970s difficulties began to emerge.
 Despite the Government investing £185 million between 1980 and 1993, Irish Steel recorded losses of £135 million. The investment in the company was substantial, representing several times the IDA's annual budget. The biggest single investment ever made by a Government in Irish Steel was during 1985-86 when £24 million was invested of which £18 million was in the form of a loan. The current Taoiseach was Minister for Industry and Commerce and was succeeded by Deputy Noonan, the current Minister for Health. Both will remember the trials and tribulations of Irish Steel.
The rationalisation of the company was initiated in 1993 by the Fianna FáilLabour Government, which considered how the plant could be modernised. Consultants were appointed and recommended sweeping changes in work practices, a reduction in the workforce and the establishment of a strategic partnership between Irish Steel and another steel finance company. This rationalisation programme was successful. The workforce accepted major changes and Irish Steel moved from a loss of £20.7 million in 1993 to a reduced loss of £5.8 million in 1994-95. Its chairman, Mr. Dineen, told me it is on track to make a small profit in the current financial year.
My concerns relate to the safeguards built into the deal to protect Irish Steel workers and the Exchequer, as they have been outlined by the Minister. The workers are a key part of Irish Steel. They were instrumental in turning the company round and preparing it for the sale. More than 230 jobs were shed and major work practice changes were accepted. I appreciate the Minister's guarantees with regard to the future of the workforce. However, I would like him to spell out in more detail exactly what is intended by the contractual commitment with ISPAT International which provides that it will pay to the State specified liquidated damages in the event of the number of full time workers falling below 300. What will happen if there is a major downturn in  the steel industry within the next five years? How can the Government ensure that liquidated damages can be obtained from this company if it runs into further financial difficulties? While ISPAT International guarantees to retain employment numbers in Irish Steel, I am concerned that there could be lay offs and redundancies in future. Is it possible that the State could be liable for this?
I would like the Minister to comment on a report in a Sunday newspaper when the original deal was concluded in September, that ISPAT International promised to pay a penalty of £10,000 for each Irish Steel worker made redundant in the next five years and all such payments were to be made to the Government. Is this report accurate and, if so, what does it mean for the Exchequer? Does it mean the State will have to pay further redundancy money in the event of ISPAT International letting workers go? Are Irish Steel workers aware of this arrangement and have they accepted it?
Why did the Government decide to sell Irish Steel? In privatisation there is often an opportunity for the Government to hold golden shares so that it can have some influence on the future of the company. Was this considered in the case of Irish Steel? How does the sale of Irish Steel fit into the Government's commitment in A Government of Renewal to maintain assets in State ownership and manage change in the interests of the workforce? If the interests of the workforce are important, why has the staff of Irish Steel not been given a shareholding in the new venture? Aer Lingus staff receive shares for accepting minor changes. Why is there not a similar arrangement in Irish Steel? The Minister should spell out in more detail how the deal will be monitored by the Government. Will there be an early warning system to deal with disputes? Must ISPAT International consult the Government and the workforce before making any major changes?
 I accept that in choosing ISPAT International the Government was satisfied it was the best company to take over Irish Steel. However, I would like the Minister to explain in greater detail why ISPAT International was selected and what advantages it had over the other companies who tried to purchase Irish Steel. He must also explain why the Government has agreed a complete sale rather than accepting ISPAT International as a strategic partner. The consultants, Simpson Xavier, who were appointed in 1994, appeared to recommend a strategic alliance rather than a sell out. Why did this not happen?
When the Minister made the announcement in September he said he hoped Irish Steel would increase in value after the sale. If the Minister expects the value of Irish Steel to increase, why should the State not benefit? Was the investment of taxpayers' money in a strategic alliance with ISPAT International considered as part of the deal? Over the past 25 years Governments have invested £185 million in Irish Steel. The Government has now agreed to write off the £17 million loan and to invest another £20 million.
I welcome the deal agreed by the Minister. ISPAT International will be a good owner of Irish Steel. It has an exceptionally good track record and is the world's largest steel manufacturer of iron ore. It has many strategic alliances and its recent acquisition of a major state mill in Kazakhstan is a significant development as Kazakhstan has the most significant resources of iron ore in the world. That ISPAT International entered an extremely difficult trading situation and acquired ownership of a major mill is a good sign in terms of its involvement in Irish Steel. While we guarantee there will not be job losses in Ireland, the 30,000 workforce in the mill in Kazakhstan will be significantly reduced.
I would like the Minister to answer the questions put to him today, but the deal is a good one for Irish Steel, its workers and for Cork. We look forward to seeing Irish Steel progress, to the  optimistic projections of the Minister and to the immediate injection of £5 million working capital and £20 million investment in capital improvements in the plant over the next number of years. My party is happy that this saga has come to an end. I compliment the Minister on a job well done.
Mr. Cregan Mr. Cregan
Mr. Cregan: I welcome the Minister and congratulate him on introducing this Bill. He said the situation looked promising in September, but that changed a few weeks before Christmas. He and his team deserve great credit for securing this deal. Some £24 million was invested in Irish Steel in 1985. Senator Fahey mentioned the loss of Dunlop, Ford and the dockyard. At that time other old industries, including industries at Whitegate and Irish Steel, were in trouble. The Taoiseach was involved in trying to save Whitegate and Irish Steel. There was a question as to whether one should close and as to which industry should stay open. Things were bleak.
The Minister mentioned what larger nations, such as Britain, can do to a State like ours. It is a sad reflection on us that some 14 EU countries said a steel plant should be based in Ireland and one said it should not be. It was an easy way out for the President of the EU who was the Spanish President to say that Ireland and Britain should get together on it. It is a little sad that the EU should suggest that. On Committee Stage we should broaden the debate to consider why one country who built steel plants down through the years, in the first world war and the second world war, and is now producing more steel and has done well through the EU having regard to the reduction in steel plants and the commitment it got from the EU, has not been prepared to accommodate us. Britain is now producing more steel in fewer steel plants than it was ten or 15 years ago. It has done well from being a member of the EU, yet it tried to stop having a steel plant here. We must question why the EU said that the two countries should get together to consider whether there  should be a steel plant in Ireland. It would be ridiculous not to have a minimum sized steel plant in Ireland where it would mean so much to the workforce and the southern region rather than exporting our raw materials to another country.
The number employed in Irish Steel has decreased from 1,000 in 1981 to approximately 561 in 1994 to 300 today. The Minister has given a commitment to maintain these jobs over a five year period. ISPAT International, which is one of the finest steel companies in the world, is known for taking over companies and making them profitable in 12 months. We want to see that happening in the Cork region. However, how can it happen if the EU places a cap on its production while allowing another nation to increase production? We should not allow this to continue without making our views known to the EU Commission.
What does Irish Steel mean to its workforce and what has it gone through? The workforce was prepared to consider anything to ensure that the steel plant stayed open. Despite rationalisation, the workforce, which was reduced by 250 people and accepted a cut in wages, was committed to new ideas as were the unions. We must ensure that no nation can tell us that we cannot produce steel.
We must consider the indirect employment created by Irish Steel — in CIE, freight companies and the private sector. Many people are employed in the transportation of raw materials to the steel works. Approximately 1,000 to 1,200 people are directly or indirectly involved in this steel plant. We are not writing off £17 million for 300 workers. More work has been generated because of the £1,000 allowance for taking ten year old cars off the road. Last year 3,500 cars which could have been exported are now going to Irish Steel.
Modern production methods could lead to increased exports. I would not like to think that we have the commitment of 14 EU members and that one  nation is biased. I do not know how the Minister was able to manage last November when the situation looked very bleak for Irish Steel because one country said it did not want any production on its western side. That is very sad. I would be prepared to raise this matter on the Adjournment if necessary. EU members should work together. No country should be allowed to say that Ireland should not have a steel plant. We can be sure it would adopt a different stance if there was a steel plant in Northern Ireland, as in the past. Then it would not object to a steel plant on its west coast.
I do not know how one country can dictate to other EU member states. Why is that country so biased? Is it because we are moving forward at last? We must hold onto anything productive which we have built. Why not allow this company to make Irish Steel profitable in the next year or two? Since it was set up in 1947 Irish Steel accumulated losses; this could not be allowed to continue. The EU would not have provided money in this regard. Why should it? The Minister has picked the best company to take over Irish Steel. I compliment him on his speech and on his openness as regards the figures, including the sale of shares at £1 and the writing off of £17 million, which was necessary if a company was to be found to take over Irish Steel.
We must consider the future of the 300 workers — I hope there will be 400 within the next five years. I know what Irish Steel means to Cobh and to Cork South-Central. Cork suffered as a result of the closure of Dunlop, Ford and the dockyard within a nine to 12 month period. At one time 1,600 workers were employed in the dockyard, 2,200 in Ford, which was reduced to 1,200, and 800 in Dunlop. Cork is committed to moving forward. It recognises that rationalisation is necessary and that the workforce must get on with it. The region, like others, has an excellent young workforce which is a credit to us.
I compliment Mr. Pat Dineen, the management and the unions in Irish  Steel. My two brothers, who are trade union officials and who are involved in SIPTU, were directly involved in this. Everybody was committed to keeping the plant open at any cost. The company must have discussions with the Minister and his officials on the future as regards the EU. Will the company need to trade outside the EU? We must not allow the company to be blocked by one or two countries.
We deserve credit for our steel plant. Unlike other countries we established out steel plant to meet our own needs. Plants in Britain were used to produce for export. I resent MPs on television dictating what should be done in Ireland. I am sure they would resent it if we told them how to run their steel plants. We have never interfered in anybody's business. I believe it gave the British pleasure to say there was enough steel in the EU. I ask the Minister to outline future EU policy.
Mr. Quinn Mr. Quinn
Mr. Quinn: I congratulate the Minister on the open manner in which he has taken us through the history of Irish Steel. This Bill will rubber stamp what is a fait accompli, but that should not stop us from looking carefully at the deal. Although nothing we say will affect the deal, there are important lessons to learn. Since a considerable amount of State money is involved, I begin by looking at it from a value for money viewpoint. Costs arising from this Bill will total approximately £37 million, of which £17 million is accounted for by writing off an earlier State loan dating back to the 1980s, while the remainder, £20 million, must come out of our pockets.
When the deal was struck six months ago, we were told that the cost would be £27 million, a sizeable sum in itself. If I have not worked out the sums correctly, I would welcome the Minister's correction. Now, after the jigs and reels of due diligence, we are told that the real bill will be £37 million, an increase of over one third. The reality, therefore, is that we are paying £37 million to have  someone take this company off our hands.
Let us leave aside for a moment the mountain of money which the State has poured into Irish Steel since the 1960s, a mountain which over the past 15 years was steadily added to at the rate of approximately £1 million per month — £1 million for every month for the last 15 years. Let us concentrate on the extra money we are now being asked to spend. The question should be — should we be throwing good money after bad? To put this deal away will cost £37 million. Is that value for money? To find an answer we must ask what benefits will flow to the State from this deal. The main benefit would seem to be that a number of jobs are being saved, at least for the time being. There are 395 jobs in Irish Steel which would be lost if the company was to go to the wall and under this deal there is the prospect that most of these jobs will continue to exist, as I say, for some time at least. One does not need a computer to work out that the cost per job saved in Irish Steel comes to about £94,000.
Is that good value? Maybe we should make some comparisons. The State development agencies now have a standard benchmark in regard to the cost of creating jobs — the cost of creating or preserving a job on a sustained basis, that is, for a period of seven years. It is a tough enough measure and rightly so because it involves taxpayers' money. It recognises that not all the costs of supporting the job are covered by what I call the up front investment. It is a measure which includes possible hidden costs and it means that the cost per job figure come out higher than it might be otherwise. By this rigorous measure, what does it cost IDA Ireland to create a job through overseas investment and what does it cost Forbairt to create a job in indigenous industry? The answer is that the average cost per job created and sustained by IDA Ireland is £12,000 while the similar figure for Forbairt is £10,000. When you put these figures side by side with what it costs the taxpayer  to sustain the 395 in Irish Steel under the terms of this deal, you realise straightaway that this is a very expensive deal indeed. We are talking about a cost per job of 8.5 times the average cost per job created by the State development agencies elsewhere. On the face of it, this does not seem to be good value for money.
There is a second factor which we can bring to bear, Senator Cregan has touched on it already, and that is the strategic importance of the industry to Ireland's economic development and the future prospects for the industry's growth. This country has an industrial strategy in place. For the past 20 years we have said we want to attract only those sunrise industries where Ireland can offer a strong competitive advantage. In parallel, we have been seeking to develop indigenous companies on much the same basis, that is, to create businesses which are built on Ireland's strengths or potential strengths, which development our capabilities in the industries of the future not of the past; that is what I mean by “sunrise” industries. From the perspective of this strategy some industries are naturally more attractive than others. We decided as a nation to develop capabilities in industries, such as computers and chemicals, and in service areas like software and telemarketing. That makes a great deal of sense because these are sunrise industries with immense growth potential in which it might well make sense to pay over the odds to get a foot in the door.
Where does steel fit into this? The short answer is nowhere. Steel is a sunset industry not a sunrise industry. The past 40 years have seen a shake out among traditional producers of steel, all over the world steel works after steel works have gone to the wall. Hundreds of thousands of jobs have been lost as an overcrowded industry has come to terms with technological change and with a changing pattern of demand. There is a region in Europe, which stretches from Alsace-Lorraine in eastern France to Luxembourg and Germany,  where the local economies have been devastated by the restructuring of the steel industry. Today's steel industry has no room for minnows; it has room only for a small number of large players who have the economies of scale and are at the cutting edge of technology.
Let me put it another way. If someone walked in off the street today and said “Give me £37 million and I will put this country into the steel business”, what would we say? Surely, our answer would be thanks, but no thanks; this is a business in which Ireland does not need to be involved in the future and this is a business in which Ireland has no competitive advantage on which to build. Our answer would also be that this is a business with very little future compared to the industries on which Ireland has focused, and intends to focus.
This leads me to the suggestion that if we have a potential imperative to preserve 300 or so jobs in Irish Steel, the price we should be prepared to pay for doing so should be less than the average cost of creating a job elsewhere, not more and certainly not 8.5 times more. Since we have already poured £175 million in equity, loans and grants of one kind or another into this ill-fated company since 1979 alone, this deal fails the value for money test. I believe it cannot be justified except on the basis that these jobs must be preserved at any cost, and I have heard these words used today. Preserving jobs at any cost is not a defensible policy; it is not one that many people would dare defend in the full light of day.
I began by saying that this deal is already done and there is nothing we can do to turn the clock back but I suggest we can learn two things, in particular, from this affair. First, when we are presented with a price tag, such as £37 million, we should compare the promised benefits with the going rate for those benefits. It is all too easy to say “It is only £37 million; that is a drop in the ocean when you look at what the State spends on other things”. Instead what we should be asking is how does  this rate in terms of value for money? If it rates badly, and especially if it rates very badly, we should have the courage to refuse the deal and use our resources to create jobs with more long-term prospects in the same area where possible. Second, we should reread the Culliton report. The clear message which came from that report was that the most effective way to stimulate growth in Ireland was to provide the right environment for industries to grow, and that environment includes lower taxes and lower infrastructural costs. Culliton showed in that attractive and interesting report that these things were far more important than the traditional State handouts which often end up trying to sustain the unsustainable.
The sorry state of Irish Steel is a graphic illustration of the truth the Culliton report was trying to show. I support the efforts made by Pat Dineen and others to ensure that sucess was obtained there. However, this Bill is testament to the sorry history of Irish Steel and shows what we should have learned from the Culliton report; we have still to learn this lesson. While the Minister has already made the decision and the deal has been accepted, we should never forgo the opportunity to learn from past deals.
Mr. Cashin Mr. Cashin
Mr. Cashin: I congratulate the Minister for his handling of the Irish Steel debate and wish him well. I am pleased, particularly as a Corkman, to have the opportunity to contribute to this debate. Irish Steel is the last heavy industry in the Cork area and its survival is essential for the well being of the area. I thank the Minister for his hard work in bringing this agreement to fruition and especially for standing firm against the objections raised to the package before us by the British Government.
Congratulations are also due to my party colleague, the Minister for Finance, who supported the current Minister throughout and for his work as Minister for Enterprise and Employment. I also congratulate my party colleague, Deputy Mulvihill, for his strenuous  work on the issue. As a former employee of the plant, Deputy Mulvihill knew only too well the importance of the issues involved.
When the package which gives rise to this Bill was announced it was met with unfavourable comment in some sections of the media. It argued that this Government and Governments through the years had put too much money into Irish Steel and that no more should be invested. I reject this argument totally. Cork has suffered badly through the years. We lost Dunlop, Ford and other major companies and another major loss would have rendered it even more difficult for Cork to bounce back. The loss of Irish Steel would have been a serious blow. It would have destroyed the confidence of the people of Cork. The devastating effect of such a blow cannot be measured in mere figures.
I am satisfied with the package in this Bill. There is little point in pretending that Irish Steel was not performing well despite Government investment through the years. The 1995 figures show a loss of £6 million but it is no secret that previous losses were on a larger scale than this. Irish Steel is a small plant in European terms, in an industry where competition has increased considerably over the past decade. Profit margins in the industry are low. To survive, any company must use the best available methods of production. This requires a considerable amount of capital as well as experience of the best practices in the industry. I am happy that the deal with ISPAT International provides these requirements.
As the Minister pointed out, ISPAT's reputation in this regard is outstanding. It is a multinational company operating on four continents. Most significantly, it has a good track record in turning around the fortunes of previous State owned companies and we should have some confidence in view of that. It is committed to production and the survival of Irish Steel. There is always a fear that when companies like ISPAT take over a struggling firm like Irish Steel, they will merely engage in asset  stripping. However, in this case the Minister has secured commitments from ISPAT in relation to production levels, capital injection and employment.
The latter point is important. The workers and unions in Irish Steel have made huge sacrifices to maintain their jobs. The cost of the company's survival plan runs to almost £9 million a year. These savings would not have been secured if the Minister had been unable to secure guarantees about future employment levels in the company. As I understand, ISPAT has contracted to keep employment levels in the plant at over 300 people and will have to pay damages to the State if the numbers employed fall below that level. The existing pensions arrangement is also to be maintained.
There is, of course, a cost to the State in all this but it is not a massive one. Not including the existing Government debt of £17 million, the investment comes to £20 million. For that £20 million, the State helps fund environmental works, the company pension fund etc. among others. For its part, ISPAT will invest £5 million immediately and a further £20 million over the next few years. This is a small price to pay for maintaining a heavy industry presence in Cork and it is more than matched by ISPAT's contribution to the plant. It is a testament to ISPAT's commitment to the plant that it has contracted to be responsible for Irish Steel's debts, other than those payable to the Government.
Part of the Government's financial contribution goes towards meeting caps on productions and sales at Irish Steel imposed on the company as a result of British intransigence at EU level over the deal. This merits some comment. Britain is more used than most in going it alone in Europe but its position on this issue is a sad reflection on it; it was petty. It is sad to see the supposed champion of free industry resorting to this level of protectionism. From my conversations with people, this deal would not have impacted in any way on British Steel. On the contrary, British  Steel's activities in this area of steel production have been downgraded for some time.
The Government is to be congratulated for standing firm against British intransigence by securing only limited changes to the original plan. It is regrettable that such changes had to be made, but responsibility for this lies firmly in the British court. The irony is that this British Government has secured subsidisation of many of its privatised industries by undervaluing them during the privatisation process. The net effect of this has been to transfer subsidies from shareholders in these enterprises, stake-holders like the British people, to shareholders and shareholders only.
In conclusion, I look forward to a speedy passage of this Bill through the House. I am confident it heralds a new beginning not only for Irish Steel but also for the people of Cork and Cobh. Hopefully it will allow Irish Steel to carve out a new niche for itself in this very competitive industry. This Bill is not controversial and I hope it secures the required support from all sides of the House. The problems in Irish Steel have dogged successive Governments for a decade. As a result of this package, an end is in sight and we should not let it slip.
Mr. Farrell Mr. Farrell
Mr. Farrell: Cuirim fáilte roimh an Bille. It is great to see these problems with Irish Steel finally coming to an end because they have been around for a long time. Irish Steel was a valuable industry. It employed up to 1,000 people at one stage and put steel on the market at a reasonable price.
The problem with Irish Steel arose from our entry to the EC. I sometimes wonder if our membership of the EC has been more of a hindrance than an advantage. Ireland lost its textile industry, which provided much employment, and many other industries on entering the EC. Many of those industries would still operate if we had been allowed to provide proper protection.
I wonder if we are too good in fulfilling our responsibilities as Europeans?  We seem to obey every rule and regulation introduced while our friends across the Irish Sea seek derogation and are anything but good Europeans. They were not friends of Ireland in the past and, in this instance, were less friendly than ever because they delayed the Irish Steel settlement for a long time. Government negotiators faced much difficulty in attempting to finalise that settlement although other European partners were more than willing to help us in this regard. It is sad that mother England adopted such an attitude. However, we are pleased that the settlement succeeded.
I agree with Senator Quinn's point about value for money. We will not receive value for money if the jobs in question will cost a great deal to maintain. However, it is better that they be maintained because if they were lost we would not receive the £50 million subsidy from Europe. The major problem is that jobs cannot be created elsewhere. If jobs could be created at a cost of £10,000 each, there would not be unemployment. It is unfortunate that we cannot buy them, that they are not stacked on supermarket shelves. These issues cannot be considered on a purely commercial basis, so it is wise to maintain jobs in Irish Steel. I hope the company involved will be honourable and guarantee these jobs.
As a previous speaker stated, a danger is that this settlement might represent the beginning of a process of asset stripping. The company might pull out of the market in two or three years saying that the business is no longer feasible or economic. The State has already experienced this problem with another company. I hope the situation will be closely monitored but, at present, we can do nothing because this deal is a fait accompli. Let us hope Irish Steel recovers to a point where it can employ perhaps 500 or 600 people.
Employment will be a major problem. A number of years ago, who would have thought England or Germany would face huge unemployment problems? Germany is one of the largest industrial  nations and could cope with any situation in the past but it is now experiencing difficulties. The Germans will have to cut social welfare and health care payments and may still not achieve the 3 per cent requirement for European Monetary Union. We must consider our position when a country such as Germany experiences unemployment problems. We must do everything possible to maintain employment. We cannot afford to lose any jobs.
On previous occasions I stated that I know of many small companies which went out of business. In many cases staff members wished to take over the operation of these companies but could not do so because the State would not provide assistance until the staff had been unemployed for six months. At the end of that six month period, the business had moved elsewhere. They should not be placed in that situation. Will the Minister seriously consider this problem? If a small firm in the services sector, for example, goes out of business and members of the staff are prepared to maintain its operations, they should not be denied assistance or obliged to claim unemployment benefit for six months. If these people can inform customers that they will take over the business when the owner leaves, we should put in place a process similar to that provided for under this Bill. If we can do this for a foreign company, surely it can be done for our small industries.
It is Government policy that people must claim unemployment benefit for six months before assistance is provided. This is completely wrong and I appeal to the Minister to end that system. Jobs are like gold dust and if lost, they cannot be replaced. The opportunities to create jobs elsewhere do not exist.
Another issue which must be considered is the tax system. In the past, many small builders employed and trained workers at a lower cost than does FÁS. However, because they were obliged to have tax free cards, etc., they went out of business and had to sign on for unemployment benefit. We must  stop looking at employers as speculators and people who steal from the State. A man who invests money in his business and employs two to three people must receive help. For that reason I support this Bill. I support any measure designed to maintain employment.
In the so-called good old days men travelled to England in search of employment. If they obtained a job immediately, they climbed the ladder of success. However, if they did not, they became part of the pub culture and would stand on street corners on Monday mornings waiting to be picked up for casual labour which lasted three to four days. They then returned to the pub and eventually slid down the social ladder.
People must have pride and the only way to have it is to be in employment. This cannot be achieved if obstacles are placed in the way and people must be unemployed for six months before receiving assistance from the State. This is stupid because a similar amount of money to the amount they received in unemployment benefit would have helped them to remain in employment. Money would not be lost. I appeal to the Minister to adopt this attitude.
Irish Steel has cost much to maintain in terms of taxpayers' money. However, it provided food for the families of 1,000 employees. It had its good days, its sunrises and its sunsets. Let us hope we are witnessing a new dawn and the company may be restored to its former glory and provide increased employment in County Cork, which has been an unemployment blackspot.
Something must be done about objectors. We all want a good environment, but we will not have one if we return to the conditions of the 1930s and 1940s. At that time I was glad to work breaking stones for 12 shillings and 6p per week in the weeks leading up to Christmas. Otherwise I would have had no money for Christmas. I do not wish to return to a similar situation. Many people who speak about protecting the environment never sat on a bag of hay,  sheltering from the wind, breaking stones to earn money for Christmas. I am not ashamed to admit that I experienced the bad old days.
We must be more considerate toward those who create employment. Construction of the Masonite factory in County Leitrim, which was delayed by objectors for many months, is almost complete. It can hardly be seen from the road and it is invisible from the river. The same nonsense occurred when SNIA established a base in County Sligo 25 years ago. It was stated that Lough Gill would be polluted and the area would never be the same. SNIA operated for 25 years, created thousands of jobs and generated much money in the economy. The lake was cleaner when the company departed than it had been when it arrived. The objectors went silent — there was no word about the good side.
We must encourage people and we cannot stop progress. Some people stop road, water and sewerage schemes and then ask why there are no jobs. How can we have jobs if we adopt that attitude? We must be more employment friendly and people who create jobs must be helped and supported because they are the people we want in society today.
There are not only 300 jobs here, there is also spin-off employment which, as Senator Cregan said, involves many more jobs, perhaps up to 1,000. When a firm closes, the number of small firms which also go the wall is colossal. They all depend on each other; if one door closes, it has the effect of slamming another and when the breeze gets through the first door, every door slams. That is what happens in business. We must give more consideration to creating jobs but, above all, we must be more helpful to people who try to create work.
I appeal to workers to form co-operatives if their company is going out of business. They should get together to keep their jobs because if they do not, their sons, daughters, grandsons and granddaughters will go through what I went through growing up in the thirties,  when there were no jobs and no social welfare. Social welfare will disappear again if there are no jobs; we cannot continue to have a social conscience and pay out money if we do not have workers, because it is they who put the money into the kitty. If we do not have workers we cannot carry the unemployed.
I ask the Minister to repeat elsewhere what he has done in this Bill. I know it has cost a lot of money. I ask him to give service industries the recognition they deserve. Those companies pay wages and, like employees of companies which export, their employees also pay into the Exchequer. Those industries are also necessary but they have received a raw deal and it is time we gave them greater consideration.
For years I have argued that we can create jobs. We are an industrial nation and there is a big market to which we should be selling our wares but are we helping small industries to sell their wares? Do we have proper sales management? We should be helping small companies to do this. I have suggested to certain people that they should call to companies who are expanding their businesses but they never do, although they are paid to do so. We should put greater emphasis on officials in our State-sponsored bodies giving advice. Someone who wants to create jobs should not have to run to offices, cap in hand; the people in those bodies should leave their offices to meet him.
The employer must be regarded as the most important person in our society. No firm should close its doors if there is any possibility of keeping them open. Corporations or county councils who evict a person for not paying his rent have to provide him with another house at no cost to him. Would they not be better to make a deal or to compromise and leave him where he was? The same logic can be applied to jobs; we must help firms who are prepared to help themselves. I welcome the Bill and wish it every success.
Mr. Sherlock Mr. Sherlock
 Mr. Sherlock: I welcome the Minister to the House, all the more so for introducing the Irish Steel Limited Bill, 1996, to secure the company's future. The uncertainty which has hung over the future of Irish Steel for some years has had an adverse effect on economic confidence and activity in Cobh. The announcement last year that a deal had been concluded with ISPAT marked the beginning of a new era for Irish Steel, ISPAT, Cobh and Cork generally. I am confident ISPAT will be able to turn Irish Steel around and that the company will be able to harness the proven commitment of its workers in establishing a market niche for itself.
Credit is due to this Government, and in particular to the Minister, Deputy Bruton, Minister of State, Deputy Rabbitte, and their officials, who worked tirelessly to secure not only the ISPAT deal but also UK agreement for the aid package. Management and unions at Irish Steel are also to be commended because they were constructive at all times.
In response to Senator Quinn, this is the only steel mill in Ireland and in any evaluation of this investment, consideration should be given to the spin-off to other industries, as other speakers said. The building of the tunnel in Cork is being served by steel from the mill.
Mr. Cregan Mr. Cregan
Mr. Cregan: Some 74,000 tonnes.
Mr. Sherlock Mr. Sherlock
Mr. Sherlock: Senator Quinn may not entirely appreciate the impact of this investment on Cobh and Cork. It proves that Ireland is not Dublin only; we have a steel industry and the Government has decided to support it. We must also consider the rates and taxes which will accrue, as well as the revenue to An Bord Gáis and the ESB.
The decline in employment at Irish Steel — from 1,000 two decades ago to just 561 — mirrors a similar decline in other European plants. It has been clear for some time that cost reductions and restructuring measures would have to be implemented if the company's long-term future was to be guaranteed. This  Government has overseen the transfer of Irish Steel from State to private ownership in a manner which ensures the interests of the workforce are protected, not just now but in the future.
In seeking to secure agreement for the aid package, thus guaranteeing the future of Irish Steel, the Government had to overcome persistent objections from the UK. The restrictions on production and export imposed by the EU are due largely to UK fears that a rejuvenated Irish Steel could pose a threat to British Steel. That in itself is a measure of ISPAT's reputation for turning ailing enterprises around. It is, however, ironic that the UK Tories — apostles of free competition, deregulation and unfettered markets — should seek to impose conditions designed to render Irish Steel uncompetitive. I have no doubt that Irish Steel will overcome the restrictions and will go on to carve out a distinctive and profitable niche for itself both in European and world markets.
We should not, however, lose sight of the fact that the problems confronting Irish Steel in recent years are part of the wider difficulties confronting the European steel industry as a whole. In this regard, Democratic Left has long argued for the formulation of a common European industrial policy which would control State aids to the richer central regions of the EU while supporting industries located on the periphery. We believe the development of a common industrial policy is vital to regional development and to ensuring that jobs are created and maintained in the periphery rather than being concentrated in the centre. Competition and intervention are not mutually exclusive. The challenge facing us is to develop a common policy which would ensure that location is not a bar to competition and which enables all industries to compete on a level playing field. Unemployment is currently the greatest challenge facing the EU. The innovative ideas put forward by the former President of the Commission, Jacques Delors, in the  White Paper on Employment have not been fully implemented. I would like to see the early implementation of the Delors proposals together with the formulation of a common industrial policy which will facilitate industries throughout the EU in achieving their full potential.
Mr. Kelleher Mr. Kelleher
Mr. Kelleher: I welcome the Minister to the House. We have called many times for a debate on Irish Steel. I have to declare a vested interest in the matter as I am from Cork. For the past 18 months to two years when we read of Irish Steel going to the wall or of a possible takeover, our thoughts were with the workers. They were willing to make sacrifices but were often kept in the dark as to what was happening. I understood the sensitivity of the issue while the Minister tried to find a company interested in taking over Irish Steel to secure its future.
I am glad the Minister referred to provisions to ensure the workers' rights are protected and to allow him intervene if necessary. It was an overriding concern for the Irish Steel unions, the workers and the public representatives in the Cork area that in the event of a take-over there could be mass redundancies and lower pay levels. Public representatives in Cork did not make a political issue of Irish Steel. Had they tried to grab headlines it would have instilled more fear and undermined the confidence of the company.
ISPAT International has a fine reputation. I am glad Senator Sherlock has welcomed private enterprise to Ireland at long last.
Mr. Sherlock Mr. Sherlock
Mr. Sherlock: Why not?
Mr. Kelleher Mr. Kelleher
Mr. Kelleher: It is to be welcomed that private enterprise is ensuring the future of a former State enterprise.
I am disappointed with the UK's negotiating stance, using its veto at EU level. It was also disappointing that the Spanish presidency suggested that Ireland and the UK should get together to thrash out a deal. The UK should  have had to object and negotiate before the other member states rather than behind closed doors where it could force the Minister's hand.
Unanimity among our EU partners has been obtained but Irish Steel will have a cap on its production which could be of detriment to the venture in the long-term. The UK wanted the cap on production because it fears ISPAT International and the possibility of Irish Steel becoming a major force in steel production in this area of Europe. The Minister should outline in greater detail why he is confident the cap on production will not pose any major problems for the plant at Haulbowline.
The European steel industry has been transformed and profit margins whittled away. The industry had been hugely labour intensive since early 1940s, yet technology was not introduced until the industry was stagnant. It finally dawned that if something was not done the job losses would have been enormous. Up to 100,000 people will be laid off in the foreseeable future in the German steel industry to ensure its viability. It is a measure of the importance of the deal to Ireland to note that we will have a few lay-offs but the survival of Irish Steel is assured.
In the future, if a State or other company is on the brink of closure, the Government must make a definite decision and guarantee the workers it will do its best to ensure the company will receive State aid or that a third party will be found to ensure its survival. For weeks on end Irish Steel workers were ferried out to Ringaskiddy for meetings and ballots, and the unions met officials and public representatives. It was sad to see people not knowing from day to day what was to happen.
In such crises the Government must decide it will ensure a company stays in business. Irish Steel had to be saved because of the huge spin-off for the Cork region. Had Irish Steel closed many people would have been laid off in smaller downstream industries. I welcome the Bill because the Government  did not stand back and let the company close. I also welcome the provisions which allow the Minister to monitor the process of the take-over. I wish the workers the best for the future. I am slightly disappointed the Minister did not send a card to the British Minister, Tim Eggar, thanking him for his help in securing the viability of Irish Steel.
Minister for Enterprise and Employment (Mr. R. Bruton) Richard Bruton
Minister for Enterprise and Employment (Mr. R. Bruton): I thank Senators for their constructive and worthwhile contributions to the debate.
Senator Quinn's comments were the most critical. They are based on a misapprehension. Irish Steel was a State owned company and the State had full responsibility for its liabilities. Closure of Irish Steel, if the Senator contemplated that as an alternative, would have been much more expensive for the taxpayer. One of the merits of the deal is that we have secured the long-term future of employment in the company with the arrival of a strong international player to support Irish Steel and have done so at a cost less than that of closure.
The third alternative was to retain the company in State ownership and hope to build a viable future. However, that would have cost a minimum of £50 million — far more than is involved in the ISPAT International deal. The EU Commission which did a great deal of consultative analysis on the viability of the various proposals, was extremely sceptical as to whether Irish Steel could have achieved viability in State ownership. We might not have been able to take that option even if we had wanted to. Senator Quinn's example giving the cost of a green field start up, where IDA Ireland or Forbairt might offer grant aid to a newly establishing industry, does not compare with a State owned company where the State was bound, in terms of decommissioning the plant, to repay substantial loans and trade creditors and to make provision for very substantial redundancy sums etc. The Senator is wide of the point in suggesting  that this was bad value for money or throwing good money after bad.
One may question whether this is a sunrise industry. While not many would regard the steel industry as a new or modern industry, it is clear that steel production will be here for a long time and successful players who develop good technology and get into the marketplace effectively will have a strong future. The key to the long term success of Irish Steel Limited will be to have the support of a strategic partner who can improve the quality and range of products available.
Senator Fahey asked why the cost increased from the original package of £27.5 million to the final package of £37.5 million. We will consider this in detail on Committee Stage, but broadly speaking, the condition we had to accept at EU level required that a substantial part — approximately 10 per cent of production — would have to be diverted away from EU to non EU markets. This, coupled with the cap on overall production, constrains the company. It is easy to see that to transport relatively low value and high volume product from outside the EU markets into non EU markets is a considerable penalty. When such conditions were imposed there was a clear cost implication. However, the project, including the cap on production, has been assessed not only by us, but by the EU consultancy and has been passed as viable. The consultancy is happy that the project, with the investment proposed by ISPAT International, will be able to achieve viability, even with the cap on production.
Senator Cregan and others questioned why any one EU member should be in a position to impose such caps. Under Article 95, unanimity is required for any State aid provision. This means moving at the pace of the slowest mover. The British Government had a veto and we had to negotiate to a considerable degree on their terms. Many have criticised the approach taken. I was, at times, confused and bewildered  by the British approach, because only approximately 10 per cent of the output of Irish Steel Limited would overlap with the output of the plant at Shelton, with which they were specifically concerned, and of this amount, only approximately 7,000 tonnes were being sold into UK markets. There was not, therefore, direct head to head competition as has often been presented in the media. Nevertheless, given that unanimity is required under Article 95, the Government was constrained, as was the EU Commission. Throughout, we had the very strong support of the Commission, but the British position was disappointing and it cost the taxpayer more. However, the alternative to not doing a deal was to see the company go down. We cannot provide any State aid money without agreement at the EU Council of Ministers.
Many Senators raised the issue of safeguards to workers. There are contractual commitments by the companies in the terms of the agreement so that if employment falls below 300 there is provision for certain repayments. I am optimistic that the project is strong and that this clause will not be used.
Senator Fahey asked why we sold the entire shareholding without retaining some of it, or holding out for worker shareholding. When we entered the original competition to attract a strategic partner, we were interested in the possibility of State or worker shareholding. However, all of the serious bidders envisaged 100 per cent holding and did not envisage that the State would continue as a shareholder. It would not be an enviable position for the State to hold a minority shareholding in a company controlled by another party. It is better to proceed with our present arrangement. There are monitoring arrangements with regard to issues such as the investments planned by ISPAT International.
Senator Fahey also inquired as to the advantages offered by ISPAT International over others. It was partly the commitment of investment it was willing to make, but it was also its strength as a  strategic partner. ISPAT International is strong. Its background in terms of sourcing raw material, technology and commitment to improving the technology of the plant and its wide international spread gave confidence that, not only was the financial deal better, but that the company had credibility as a partner. We are especially pleased with the company.
I recognise the value of Senator Cregan's remarks on downstream employment. It is a very important aspect of this project. I have already addressed his comments on the issue of competition and how one company can hold out against another in this area.
Senator Farrell and Senator Cashin raised concerns about asset stripping. There will be no question of this. Under the deal, ISPAT International is putting £20 million of capital investment into the plant enabling it to build up the quality of assets. In addition, there was no head to head competition with British Steel.
Senator Farrell raised the wider agenda of job creation strategy. Much of what he said made good sense. The service sector needs far greater recognition. Problems regarding a six month period on the dole would not normally apply in the case of management buy-outs. The issue of support from the dole is related to measures such as back to work allowances, administered by the Department of Social Welfare, and involves people who were unemployed starting up. Management buy-outs are different and perhaps I will follow this up with the Senator on another occasion.
Senator Sherlock raised the interesting issue of the need for a common industrial policy with regard to State aid. This is desirable from an Irish and an EU perspective. The difficulty with not having some kind of co-ordinated approach is that we effectively get into wasteful competition for projects and the European taxpayer is ultimately the loser. The stronger countries can afford to offer higher levels of State aid, even within the existing State maxima.
 The difficulty with getting change in this area is that, like section 95 under the steel aid code, substantial unanimity would be required for any changes in State aid rules to be brought in at EU level. It would be extremely difficult to establish State aid ceilings. However, I would be keen to examine this issue in the context of our own EU Presidency, from June to December this year, to see whether we can establish a more level playing pitch for State aids.
Senator Kelleher spoke about the fear that the capping of State aid would damage the long-term viability of the plant. We would prefer not to have the cap imposed but we have, at the same time, vetted this carefully and we are confident that the package as agreed will secure viability. I dealt with Senator Quinn's comments at the start of my reply. The situation where the IDA looks at greenfield start ups for outsiders coming in is different from the situation where the State owns a company and with it all the liabilities built up — such as loans outstanding, commitments to redundancy payments and to decommissioning the plant. We valued these commitments at well in excess of £40 million, and that was not including the written off loan.
In terms of value for State money, we have a strong plant going forward with a good international partner in an industry which one might not say is a sunrise industry but nonetheless is a very important strategic industry in the long term. We will be able to secure a good niche for ourselves in this industry on the basis of that partnership. Our action today is a lot cheaper than the alternative of closing. A value for money test has to look at the realistic alternatives and the two alternatives were far less attractive than the deal we are doing today.
I thank the Senators for their very constructive approach which has characterised the debate in these Houses on Irish Steel throughout the last number of years. There has been a consensus across the political parties to deal constructively with this issue and that cross  party support has helped ensure that the State got a better deal for all concerned.
Question put and agreed to.
Committee Stage ordered for Wednesday, 27 March 1996.
Mr. Manning Mr. Manning
Mr. Manning: It was agreed on the Order of Business that item No. 2 would be taken immediately after item No. 1. However, as Members may be aware, there is major traffic chaos in Dublin today and the Minister is caught in this traffic. With the permission of the House, I propose that the House adjourn until 5.45 p.m. when we will take item No. 2.
Acting Chairman (Mr. Finneran) Acting Chairman (Mr. Finneran)
Acting Chairman (Mr. Finneran): Is that agreed? Agreed.
Sitting suspended at 5.5 p.m. and resumed at 5.45 p.m.
Seanad Éireann 146 Irish Steel Limited Bill, 1996: Second Stage.