Seanad Éireann - Volume 98 - 19 May, 1982

Irish Shipping Limited Bill, 1982 [Certified Money Bill]: Second Stage.

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

Minister for Transport (Mr. Wilson): The immediate need for the proposed legislation derives from the intention of the Government to institute a special financing arrangement for the Panamax bulk carrier which is at present under construction at Verolme Cork Dockyard Limited for Irish Shipping Limited.

The contract for the construction of the bulk carrier was placed in February 1981 and the original arrangement was that the cost would be financed by the provision of £7.1 million State equity to Irish Shipping Limited, a Shipping Finance Corporation loan of £7.1 million to the company, and a State subsidy to the shipyard. The estimated cost of the vessel at the time of placing the contract was £25 million. The contract is subject to escalation clauses and the final cost is now estimated to be £28 million. The net effect of the original financing arrangement as far as Irish Shipping Limited are concerned is that the vessel would stand on their balance sheet at £14.2 million, that is the £7.1 million equity and the loan of £7.1 million. In cash terms the obligation incurred by the company would be the payment of interest on and the repayment of the capital sum of the £7.1 million loan over a period of eight years.

The special financing arrangement now proposed is in line with Government policy to take advantage of funds on offer from the private sector and is being pursued by Irish Shipping Limited in consultation with my Department and the [88] Department of Finance. The arrangement, which is still at the negotiation stage, will incorporate a leasing contract in respect of the vessel on attractive terms. The Government will underwrite lease payments by Irish Shipping Limited to such an extent that the company's commitment will be no greater than that which would have applied under the original financing arrangement.

Although, as I have just explained, Irish Shipping Limited will only be responsible for payments equivalent to that which they would have paid under the original financing arrangements, it is necessary for the purposes of the special funding arrangement that they should assume formal responsibility for the full £28 million cost of the vessel. The banking institutions concerned require that the Government give formal guarantees in respect of the obligations which will fall to Irish Shipping under the special arrangements. Such guarantees are, in effect, similar to normal State guarantees of borrowing by Irish Shipping for which there is already statutory authority. I am advised that specific statutory authorisation as proposed in the Bill before the House is necessary in respect of the particular type of funding now proposed. The Government are empowered already to give such assurances in the case of other State bodies—for example, Córas Iompair Éireann, under the State Guarantees (Transport) Act, 1962. The legislation which I am proposing today will remove the obstacles which at present exist to leasing and other contracts being entered into by Irish Shipping Limited with the benefit of a Government guarantee.

I should emphasise again that the negotiation of the revised financing arrangements has been the responsibility of Irish Shipping Limited themselves and that the company are entirely satisfied that, from their point of view, they offer terms as advantageous as the original financing proposal. I am also satisfied that the special arrangements represent the most efficient way of meeting the Governments undertakings in relation to financing the vessel. Due to the fact that negotiations are still in progress and that [89] premature disclosure might jeopardise the success of the negotiations, I am unable, at this stage, to give particulars of the proposed arrangements.

I would wish to draw the attention of Senators, however, to the fact that the Bill in section 5 provides for an annual statement as to guarantees to be laid before each House of the Oireachtas.

On a more general note I should like to refer to the general activities of Irish Shipping for whom the past year has been one of considerable progress. Through their new subsidiary company—Ocean-bank Limited—the company have sold a 25 per cent share of both Irish Continental Line and their shareholding in the Insurance Corporation of Ireland and the Property Corporation of Ireland. This transaction released funds to the company which helped them to finance the purchase of a secondhand car ferry—the St. Patrick II—and to lengthen the existing ferry the St. Killian. These developments have substantially increased carrying capacity on the Rosslare/ continental routes to the benefit of both tourist and commercial users.

The company have also been very much involved in the reinstatement of the Belfast/Liverpool service—my fellow Ulstermen will rejoice in this—previously operated by the P & O Company. The new service began on 1 May and is operated by the former St. Patrick now re-named St. Colum I.

Irish Shipping's main activity, the operation of a fleet of deep-sea ships, has had to contend with a fall in freight rates due to the present stagnation in worldwide shipping resulting from recessions in the US and other industrial countries. The company, nevertheless, hope to benefit from the upsurge in activity in the bulk carrier trade in coal. The National Board of Science and Technology in their study of Ireland's coal shipping requirements estimated that the business of shipping coal to Ireland will increase from £18 million in 1984, to £29 million in 1986 and may reach £47 million in 1988.

There is valuable business here for Irish shipowners and I have no doubt that Irish Shipping Limited will be able to [90] trade the new bulk carrier profitably in this market. In the latter connection, I understand that the coal requirements of the ESB are expected to increase substantially during the next decade and I would hope that Irish Shipping Limited as well as other Irish shipowners will be able to play a major role in providing the necessary transport.

The final accounts for the year ended 31 March 1982 are not yet available but the indications are that the company will maintain their profit record and will improve on the profit of £3 million which the company returned in 1981. The company will also be reporting an increase in passenger carryings by Irish Continental Line of the order of 2 per cent. This is certainly a very satisfactory situation and very much to the credit of the board and personnel of the company, having regard to the tough trading conditions of recent years.

Is main liom mar sin an Bille seo a mholadh don tSeanad. Go bunúsach, is Bille é a chuireann ar chumas an Aire Airgeadais barántas a thabhairt i leith íocaíochtaí áirithe a dhéanfas Loingeas Éireann Teoranta. Tá an chumhacht sin ag an Aire cheana chomh fada is a bhaineann le hiasachtaí, agus is ceist teicniúil dlí í an chumhacht chéanna a thabhairt dó maidir le íocaíochtaí. Rinneadh an ní céanna cheana i gcás Chóras Iompair Éireann. Ach taobh amuigh de sin, tá dhá mhór-chuspóir leis an mBille, uimhir a haon, chun a dheimhniú go mbeidh ar chumas longchlóis Verolme i gCorcaigh an lucht oibre a choinneáil ag obair ar an long nua atá dá tógáil acu, agus, uimhir a dó, feidhm a bhaint as airgead príobháideach ó bhancanna agus a leithéid chun cabhrú le aidhmeanna na gcomhlachtaí Stáit.

Accordingly, I recommend the Bill to the House.

Professor Dooge: As you announced at the commencement of business today a Chathaoirligh, due to an oversight this Bill was not circulated to Senators, and accordingly some Senators only received the Bill perhaps less than one hour ago. This is a pity because it is an important [91] Bill. It is a Bill that merits discussion. On the other hand, being a Money Bill, it is a Bill which this House cannot delay unduly.

The Minister is proposing to us that legislation be passed to enable the Minister for Finance to make guarantees to Irish Shipping. Most legislation introduced in order to give guarantees to companies or organisations is introduced because there is some doubt about the ability of such companies to be able to raise money without the backing of State guarantees. This has not been the case with regard to Irish Shipping, and would not be the case in the future in regard to Irish Shipping but for the special circumstaces that have arisen in regard to the building of a particular vessel.

The Minister has indicated that a vessel is being built at Verolme Dockyard of a type which Irish Shipping would have been able to purchase for £14 million and for which the original estimate at Verolme Dockyard was £25 million and the latest estimate is that it will cost £28 million. There always is a need to balance the objectives of public policy. There is always a need to balance the very important objective of competitiveness in world trade with the very important objective of the promotion of employment at home.

At different times we will reach different decisions in regard to how much weight should be given to each of these two objectives. When that decision has been made it is vitally important that we be quite clear about what weighting has been made. The only real way to do this is to be quite clear in regard to the expenditure of money and how much of the money will be allocated for a purely commercial purpose and how much in order to achieve a social objective of a non-economic kind.

The Minister indicated in his Second Stage speech, in regard to the purchase of this new vessel, that 50 per cent of the cost would be the commercial cost of the vessel on the open market and that 50 per cent of the cost will be a subsidy for employment and for the continuation of the Verolme Dockyard. It is important [92] that this should be clear. One of the things which worried me about the form of the Bill is that on the face of it, looking at the Bill without the Minister's introductory speech, it is not clear at all that the guarantee which is given in section 2 is in fact not a guarantee but a subsidy. The guarantee given to Irish Shipping is not a guarantee to Irish Shipping in the ordinary sense, it is not even a subsidy to Irish Shipping, it is a subsidy to another organisation. The original arrangement apparently was that Irish Shipping were to be responsible, raising by their own devices which had sufficed for them in the past, just over £14 million. Apparently they would have been in a position, if the ship had been built outside this country, to have been able to borrow this money at 8 per cent over an eight year period.

At that time it was suggested there would be a direct subsidy by the Department of Industry to Verolme dockyard. Under this, everything would have been clear. There would have been no doubts whether they could be removed by footnotes or otherwise, in the accounts of Irish Shipping. There would have been no doubts in the accounts of Verolme dockyard; there would have been no doubts in the accounts of the Department of Industry and Commerce or in the accounts of the Department of Transport. But the new proposals are by no means as clear. It now appears — I am sure the Minister will correct me if I misinterpret any of the arrangements, but the fact that I would misinterpret something would reinforce my argument that it is not clear — that the cost of £28 million is to be made up by some unknown, as yet unnamed, financial institution. It appears to me on reading the Bill that, whereas under the previous arrangement the contract price between Irish Shipping and Verolme dockyard would have been £14 million, now the contract price will be £28 million. Irish Shipping are to lease from this financing group over a 12-year period.

The Minister has said that Irish Shipping will be no worse off, given this guarantee. But it is equally important that it should be clear to everybody not just that [93] Irish Shipping is no worse off but that Irish Shipping is no less efficient today than it has been over the past ten years. There must be a balance with objectives but it is equally important that there be a clear distinction between economic costs and social costs.

The failure to distinguish between economic and social costs in many of our enterprises is responsible for a great deal of our problems today and successive Governments are largely to blame for that. What is proposed now is particularly regrettable. The Minister said in his introductory speech that:

Such guarantees are, in effect, similar to normal State guarantees of borrowing by Irish Shipping for which there is already statutory authority. The Government are empowered already to give such assurances in the case of other State bodies — for example, Córas Iompair Éireann, under the State Guarantees (Transport) Act, 1962.

and in the summary of his speech:

Rinneadh an ní céanna cheana i gcás Chóras Iompair Éireann.

Ní hí an cás céanna atá ann i leith CIE agus Loingeas Éireann. There is a difference between the operation of CIE over the past ten years and the operation of Irish Shipping.

Irish Shipping was formed during the war years with a non-economic objective, with a public objective. The public objective was the strategic one of ensuring that this country had both a merchant shipping fleet and a merchant marine capable of operating it. The remarkable thing about Irish Shipping which could be a headline to many other of our State-sponsored bodies is that Irish Shipping transformed itself, after an initial period of 20 years during which like most of our State companies it lost money. Irish Shipping looked at its operations around 1966. It could have carried on by saying, “we have been given a public objective by the Government of maintaining a strategic merchant marine and therefore it does not matter if we make a loss because this is part of the stategic cost to the country [94] of having a merchant marine available in time of war,” but Irish Shipping did not accept that position. It took a thorough look at its own operations and set out its objectives. When we are discussing Irish Shipping here and the way in which this Bill may change the perception of Irish Shipping it is no harm to look at the objectives of the company. I will quote from the submission by Irish Shipping to the Joint Committee on State-Sponsored Bodies and which appears in the appendix to the report of the Committee of 3 March 1981 (Prl 9663):

Within the framework of a profitable company to provide, maintain and operate efficiently and economically a basic fleet of vessels under the Irish flag together with the necessary organisation, management and personnel to run this fleet. The aggregate size and composition of the basic fleet to be reviewed and agreed from time to time with the Minister for Transport and Power.

They did not stop by setting down that objective. They set out basic policies under that objective and they set about turning themselves into a profitable organisation. They did it by the elimination of uneconomic ships from their fleet; they initiated discussions with the full co-operation of the unions in regard to the manning of the ships in the Irish Merchant Marine; and they did it by means of diversification. As a result of that transformation, in the next five years from 1967 to 1972 instead of an anticipated loss of £2.5 million they had a profit of almost £2.8 million. The position is that Irish Shipping, while still fully maintaining its non-economic objectives, has managed by good management and by good enterprise and by solid contributions by management and worker to do that job within a profitable environment.

In the ordinary course of events Irish Shipping needs no guarantees. It is unfortunate that this Bill should come forward in this particular way. In the report on “Enterprise in the Public Service,” (Prl. 8499), the National Economic and Social Council urged that our State-sponsored [95] bodies should operate in a particular way. If we look at the record of Irish Shipping we will find that most of the things recommended in that report are part and parcel of the everyday work of Irish Shipping. I am not convinced that the new arrangement is a suitable arrangement. The Government were right to say that the ship rather than being built in Japan should be built in Verolme dockyard in Cork. This is a perectly legitimate decision and one with which I entirely agree. That decision having been made, what should have been done is that the original proposal for the subsidy to be paid directly to Verolme dockyard should have been adhered to. However we must deal with the proposal that is now before us. The powers of this House with regard to a Money Bill are limited and I do not oppose the passage of the Bill if only that the Bill might be passed and Irish Shipping relieved of the burden of the bridging loan of about £10 million which it appears to have had to bear because of the subsidy not having been paid directly. There are details in regard to the arrangement that are not clear from the Minister's Second Stage speech, but they are perhaps better taken up on Committee Stage.

May I say in summary that I am glad to have had the opportunity to congratulate Irish Shipping on achieving the objective of carrying out a public function within a profitable framework and indeed am anxious whether there should be even the appearance that this company is not carrying on with the high degree of efficiency which characterised it over the past 15 years. If the original arrangement had been adhered to there would not be the danger of such doubts arising.

Mr. Crowley: Like Senator Dooge I welcome the Bill, In his contribution he has raised very important questions. In semi-State company terms, Irish Shipping shine out like an economic beacon throughout the country. They are an example to every other semi-State body of how to combine commercial expertise while at the same time adhering to the principle of the semi-State body. No small [96] credit is due to the enlightened management that we have in Irish Shipping and that we had in those who drew up the ground rules, those people who were far-sighted and visionary enough to say that we were not prepared to accept the usual definitive position of a semi-State body, that they had to be subsidised by the State. If for no other reason than to pay tribute to this outstanding semi-State body I welcome this Bill. It gives us an opportunity to discuss economic costs versus social costs, economic costs combined with social costs and what percentage should be economic and what percentage should be social, which is what Senator Dooge was getting at.

I suppose if we had the answer to that we would not have any loss-making semi-State body in the country, but we should pursue actively a policy in this House of ensuring that the executives of every other semi-State body will study the operation of Irish Shipping, the way they plan and the way they recruit their personnel. There is no doubt that it is because of these policies that Irish Shipping are in the constant profit-making position they are in today. I suppose most of us are cynical about semi-State bodies, that they know there is a certain subsidy coming up and that they operate in anticipation of that amount being paid. We are now living in a new era of very expensive money and very scarce money and we cannot any longer go on having the ordinary taxpayer paying massive subsidies to promote and to continue inefficiency. Today we have an example in Irish Shipping of the direction in which this country should be going. It is important, provided we can meet the cost, that we manufacture, assemble and build everything in Ireland, that we give employment to the people we represent, that we give employment to our own people at home rather than having them emigrate in order to get employment. Surely it is far better to subsidise the building of a ship rather than paying out that money in dole to a tremendous number of people.

The main thing I want to get to is that we must pose the question nationally now, we must try to seek the answers to [97] this question, and the question is: why are Irish Shipping so successful? Once we can find the answer, our other semi-State bodies can learn from our findings and I think we will have made tremendous economic progress as far as the country is concerned.

I was very impressed with Senator Dooge's contribution and the depth of research that he has done in relation to this. I know that the questions that were posed to the Minister are very important questions and must be answered. But at some other stage we will have to have a debate on the measuring of economic versus social costs, because the kernel of our problem lies in that direction.

Irish Shipping have not just been satisfied to sit down and operate through a very narrow channel. They have diversified. They have gone into other businesses allied to their own operation and they have made a success of all these businesses. Surely it is time for us to examine why they are doing this and how they are doing it successfully. This is a great opportunity to have a Bill like this which at first appears to be an innocuous Bill but has tremendous importance and relevance for the whole country. It is important that we examine and plan for the future how we can make other bodies equally efficient.

Mr. O'Mahony: I add my voice to that of the previous speakers who have complimented the Irish Shipping Company on the quality of their work. They are, of course, as we know one of the most successful semi-State enterprises in the country. They show consistent profit over time and obviously all of us in the House would wish to applaud them, having been given this opportunity today.

Because of our recognition of the immense value of the work of this company and their commercial expertise, it is a pity that the funding operation is being organised in the way that it now seems we are to do it. As I understand the position, when the Government indicated to or instructed Irish Shipping to build the ship in Verolme dockyard, the arrangements were quite straightforward; £7.1 million of the then £25 million [98] cost was to come through State equity, £7 million through borrowing by the company and £11 million by direct subsidy from the Exchequer to Verolme itself. That arrangement had the merit of distinguishing clearly between the market price of the ship and the subsidy which was being made to Verolme for employment and other social reasons. I support the idea that the ship should be built in Verolme. It is important not only that we maintain the employment which is there but that we, perhaps more importantly, in the long-term maintain the skills which are being accumulated in the area of shipbuilding in the country.

That initial arrangement for financing the ship in 1980 seemed to me to have the merit of distinguishing between subsidy to the shipyard on one hand and indicating also clearly that the Irish Shipping Company were responsible only for the commercial, international market price value this year. The new arrangements confuse these two matters and I share Senator Dooge's concern that by confusing them the reputation of the company could conceivably be damaged. Perhaps the most useful thing that I could do today is to try to elicit more information about the terms and form of the new leasing arrangements. In a situation in which all of us in this House are concerned about the public finances, it is important that in the Seanad and in the Dáil we try to have before us as much information as possible about precisely what is happening in the leasing arrangements proposed for Irish Shipping.

Is it possible for the Minister to give us information about who is funding this leasing arrangement? Is it the case, as I expect it is, that the ship at the end of the 12 year leasing period will become the property of Irish Shipping? What rate of interest is being charged under the consortium arrangement? What will the total annual payments be and how will these be distributed between Irish Shipping and the Exchequer? Under what headings in the annual Estimates will these Exchequer payments be shown? Is it the case that the leasing arrangements are integrated into the section 84 Finance Act arrangements whereby the banking [99] or financial institutions concerned can write off costs against profit? In that sense, can the Minister give us an indication of the total cost of the operation to the Exchequer over the 12 year period, including the section 84 arrangements if these apply? This information would be most helpful to us. The Minister stated that it is not possible to indicate all the details of the proposed arrangements but, at a time when there is such concern about public expenditure, it is important that he provide us with as much information about the proposed arrangements as it is possible.

I should like to make one additional point in relation to Irish Shipping. We all applaud their operation and accept it as being one of the most successful of all the commercial State enterprises. However there is one major problem which I am concerned about. It appears that Irish Shipping are trading into South Africa. If this is the case, as was asserted recently by the Irish Anti-Apartheid Movement all of us in this House would be deeply concerned. It appears that in 1979 Irish Shipping became the Dublin agent for a company called Sasmarine, which is a South African shipping company. It is also the case that in the 1982 yearbook of the Chartered Institute of Transport in Ireland, Irish Shipping advertised the fact that they can be contacted for all imports and exports to and from a range of countries including South Africa.

While all of us wish to support and applaud the work of this State enterprise, many of us would feel a deep sense of moral outrage if this is the case and if it continues beyond the present point. I ask the Minister if he does not have the information with him today to make inquiries of Irish Shipping as to whether or not, as asserted by the Irish Anti-Apartheid Movement and as seems to be the case from the advertisement which I have just read out, they are shipping into South Africa and, if they are, to talk to them about stopping that particular operation. We are talking in this case about something which transcends commercial requirements and which is, in fact, a moral imperative.

[100] Mr. Fallon: I welcome the Bill. The proposed legislation is urgently required in order to enable funds to be made available to continue the payment of instalments to Verolme dockyard for the bulk carrier which they are at present building for Irish Shipping. If the instalments cannot be paid there will obviously be a loss of jobs and a consequent threat to employment in the yard generally.

In mentioning Irish Shipping it is only right and proper, as other Senators have done, to congratulate them for the great work they have been doing over the years in the commercial and tourist spheres of the country. They are as suggested by other Senators a first-class semi-State organisation and one which can be copied with authority.

The Bill was given to us late today. The specific purpose of the Bill is to enable the Minister for Finance to guarantee moneys payable by Irish Shipping Limited under guarantees given or under contracts entered into by that company. Mention has been made of what was required in regard to financing. It was a State equity of £7.1 million, a loan from the Shipping Finance Corporation of £7.1 million and a subsidy to the yard of the balance of the cost of the bulk carrier. I know that this has been changed in accordance with Government policy which is to involve the private sector in matters of this type. It is only right that we should do this because recently a growing private sector interest has developed notably among financial institutions, in participating in the financing of public sector investment projects. We should welcome this approach to national development and the scope which it offers for the enlargement of investment activity in the economy. We should have no doubt about this particular type of arrangement. It is one that we should welcome.

This Bill is an important one. It does, as has been said by other Senators, raise many other problems for another day. I welcome the Bill and hope it has an easy passage through the House.

Debate adjourned.