State archives: Dukes warned Government about funding for Irish Steel

The Government continued to pour money into the ailing Irish Steel plant in Haulbowline, Co Cork, during 1985 — despite the clear misgivings of then Minister for Finance Alan Dukes.
State archives: Dukes warned Government about funding for Irish Steel

State papers show the Minister for Industry John Bruton sought Cabinet approval to invest IR£18m in the company on December 3, 1985.

Irish Steel had received IR£6m six months earlier, on condition that it negotiated a pay freeze with its staff until the end of 1986 and a redundancy scheme which would cut labour costs by at least 10%.

This followed Mr Bruton’s unsuccessful request for approval for the immediate closure of the plant, and the liquidation of the company six months previously, when he was supported by Mr Dukes.

Irish Steel had also been given IR£89m in funding in 1984 in a bid to avert its closure.

A condition of the proposed IR£18m investment was Irish Steel had to inform Mr Bruton immediately of any deviation from its financial projections. In such circumstances, the minister was to report to Government with a recommendation as to whether the plant should be closed. Irish Steel management was also encouraged to continue to seek a joint venture partner in light of the constricting of Europe’s steel industry in the mid-1980s.

Sean Lemass, the Minister for Industry and Commerce in August 1939, switches on the current at the new Haulbowline steel mills.
Sean Lemass, the Minister for Industry and Commerce in August 1939, switches on the current at the new Haulbowline steel mills.

Documents show Mr Dukes said he continued to have misgivings about providing any further financial assistance to Irish Steel. He believed the company’s chances of a new investor would be improved if it was placed in liquidation rather than sold as a going concern. Despite having made several recommendations that the plant should be closed, Mr Dukes observed the company had already received equity of IR£120m, grants of IR£30m and loan guarantees of IR£35m from the Government.

“This Exchequer aid of IR£185m has still not resulted in the company becoming viable,” he added.

Just less than120 workers had availed of the redundancy package earlier that year. The pay freeze saved Irish Steel around IR£3m, while the redundancies provided annual savings of IR£1.73m.

Mr Dukes was also concerned that a scheme by the Minister for Energy Dick Spring, in reducing Irish Steel’s electricity costs, ran counter to EEC rules on aid to steel industries. Document show Mr Dukes’ annoyance that the scheme had been introduced without any consultation, despite the statutory duty on Mr Spring to inform him. The Kildare TD said he considered it objectionable in principle to provide funds which, according to the State company’s own projections, might not be required.

However, Mr Bruton argued in favour of advancing Irish Steel further money on the basis that its workforce had accepted an austere rationalisation package combined with a modest recovery in prices for steel and the prospect the company could become financially viable.

He also pointed out it was the Government’s last opportunity to invest money in Irish Steel, as such aids were due to be phased out shortly by the EEC. Mr Bruton said that while Mr Spring’s scheme had resulted in a 25% reduction in Irish Steel’s electricity charges, it ran contrary to EEC rules on State aids to the steel industry.

The Government heard the prospect of Irish Steel securing a joint venture partner were “not great,” despite the fact that its management had spoken to potential investors in the US, Canada, Asia, the UK, and other European countries.

Consultants hired by Irish Steel had also identified savings of around IR£2m which could be achieved through improved scrap management, stock control, production and administrative procedures.

Changes had also been made to what the Government and Irish Steel management considered restrictive work practices.

Mr Bruton acknowledged that the investment of an additional IR£18m could not be justified “on strictly commercial criteria”.

An aide memoire for Government showed ministers were concerned about how the possible closure of Irish Steel could impact on their chances of being re-elected to power.

The document argued the earlier the planned closure of the plant, “the further is the trauma that it causes from a general election”.

The counterargument was if it deferred a decision on closure, the Government could argue that it had tried every possible option to save the company.

A note in July 1985 from an advisor at the Department of the Taoiseach, Patrick Honohan — the recently retired governor of the Central Bank — said the economic arguments in favour of, and against, the closure of Irish Steel were finely balanced.

“There is certainly no overwhelming economic argument for closure,” observed Mr Honohan, who pointed out that it seemed likely that keeping the company open would save the Exchequer money.

Mr Honohan suggested there was a strong case for getting the ESB to increase its charges to small users to allow it lower costs for big users like Irish Steel.

He noted the original decision to build the Haulbowline plant was “disastrous”.

Irish Steel was eventually sold by the State to Indian tycoon Lakshmi Mittal for £1 in 1995.

The plant, operating under a re-branded name Ispat, shut in June 2001 with the loss of 450 jobs.

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