Committee Reports > List of Committees > Joint > 1979 > Committee on Commercial State-Sponsored Bodies > Report No. 05 - Ceimicí Teoranta

MIONTUAIRISC NA FIANISE

(Minutes of Evidence)

Dé Céadaoin, 4 Iúil, 1979

Wednesday, 4 July, 1979

CEIMICÍ TEORANTA

Mr. J. B. Hynes, Chairman; Mr. D. L. Rice, Managing Director; Dr. Anthony Owens, General Manager (Alcohol and Fine Chemicals); and Mr. Aidan Macken, General Manager (Glucose) of Ceimicí Teoranta called and examined.

Chairman.—Thank you for coming to talk to us, gentlemen. We have been having some difficulty with the recording equipment, so I would ask everybody to make a special effort to speak up. We are, of course, on tape as from now.

1. Senator Cooney.—This is a question on your financial results that you incorporated in your submission to us.* There was a startling fluctuation in the results achieved over a number of years, in particular between the years ended December, 1976, 1977 and 1978. Profit before taxation in 1976 was £67,900. The following year that turned into a loss of over £550,000, and in 1978 there was a profit of £162,400. I see in a later part of the submission with regard to glucose prices—I read this as a suggestion— that the cost to you of starch can be the main factor contributing to this fluctuation that I have referred to. Am I right in reading it that way?

Mr. Hynes.—That is correct.

Mr. Rice.—It is mainly a fluctuation in prices of the raw materials and secondly, it is the delay in being able to adjust our glucose prices to the price of the raw materials.

2. Senator Cooney.—It seems to me to be an extraordinary situation that you have to buy at £X and you cannot take that price into consideration when you are fixing your sales price.

Mr. Hynes.—The company had an arrangement with the Prices Commission, a prices contract. It was rather complicated in that the company made a contract for the following year at £X.

3. Senator Cooney.—A contract to sell its product?

Mr. Hynes.—Yes. It did mean, of course, that every year we negotiated a new contract price. It probably should have been broken off about 1974 because, once inflation started to rear its ugly head, price increases became almost monthly. We could not recover price increases until the following year. Actually we could not make an application for recovery until the audit was completed, which usually meant that it might go into May of the following year before we could actually get a price adjustment. It was a very artificial situation.

Mr. Rice.—In the meantime the price of starch would have jumped. The price of your raw material would have jumped, and you would not have got the price increase in your glucose for perhaps five or six months.

4. Senator Cooney.—Surely it is a crazy way to trade?

Mr. Rice.—It is.

Mr. Hynes.—We mentioned in our submission that we had applied through the Prices Commission for a revision of price control procedures and I am now glad to say that everybody has agreed it was a crazy situation. The Prices Commission has recommended to the Minister, and the Minister has accepted, the proposal that we should be removed from that kind of price control.

5. Senator Cooney.—Are you now free to charge an economic price for your products?

Mr. Hynes.—Yes. We are now free to increase our prices but not wantonly.

6. Senator Cooney.—Not wantonly but to give yourselves a reasonable profit?

Mr. Hynes.—Yes, hopefully.

7. Senator Cooney.—If the market can stand it, subject to that?

Mr. Rice.—Exactly, yes.

8. Chairman.—To what extent would that be an inhibiting factor? You have stressed the fact that you were subject to price control. If there had been no price control what difference would it have made in recent years?

Mr. Macken.—Over the period we are talking about, had we been free to increase our average annual price by 4 to 5 per cent we would have been clear of a loss.

9. Chairman.—But would you have been able to get an extra 4 or 5 per cent?

Mr. Macken.—We believe we would. There is a limit obviously—the going price in the market, where we have to be competitive against imports and so on.

10. Senator Cooney.—This new régime would be reflected in your current year’s trading?

Mr. Hynes.—Fairly, because we have only——

11. Senator Cooney.—How many years was that application awaiting a decision?

Mr. Rice.—It was dealt with very quickly.

Mr. Hynes.—To be fair, we made the application shortly after we presented this document to the Committee—I have the letters here. It was dealt with so quickly that one can say it was very reasonable.

12. Senator Cooney.—The application was not made until after you presented this document to the Committee. But the state of affairs requiring this application had been in existence as far back as 1974?

Mr. Hynes.—The difficulties were there since 1974. But the application to get out of price control was made on the 30 March supplemented by a document of mine of 4 April.

13. Senator Cooney.—What year?

Mr. Hynes.—1979.

14. Senator Cooney.—Was consideration not given to making this application in 1974 when these difficulties first presented themselves?

Mr. Hynes.—Perhaps we should have been a little more active in that sphere. But the thought had been in the company that price control was a firm position on which you could not easily negotiate.

Mr. Rice.—Also in 1974, 1975 and 1976 we were in a profit situation. The price control which was existing then would have worked well had not the the prices of the raw materials risen. In a fairly normal situation it would have been all right but we must bear in mind the way prices of raw materials have fluctuated, and they have changed with the cereal prices in the EEC.

Senator Cooney.—I appreciate that.

Mr. Rice.—In 1974 and 1975 we had a big profit. The reason it went down was that, in this contract arrangement we had with the Prices Commission, if we made more than what was considered a normal profit that was deducted from what we were allowed the following year. This causes a fluctuation.

Mr. Macken.—On top of that, in 1974 and 1975 the price increases we applied for were sanctioned very quickly. Therefore there was not a delay in 1974 or 1975. It was later that the delays caused us real problems.

15. Senator Cooney.—Then, the position is that you did look for price increases in each of those five years?

Mr. Rice.—That is right.

16. Senator Cooney.—Was there any reason that you did not get it in 1977 when you had a loss of over £550,000?

Mr. Macken.—In 1976 in particular there was a change in the speed at which our price increases were sanctioned by the Prices Commission. That changed around 1976. That is the stage at which we began to experience difficulty in getting price increases through. 1977 was a disastrous year because our application from 1976 meant we were losing £29 a ton—for four months through 1977. Then we ran into an industrial relations problem at the factory which resulted in a loss of production anyway.

17. Senator Cooney.—You say that the price increase given to you—if the year before your application was a very good one—is less than is justified by your costs, etc.?

Mr. Macken.—That is true.

18. Senator Cooney.—Does that not put you in an impossible position from the point of view of fluctuations in price?

Mr. Rice.—It does of course. This was a problem.

19. Senator Cooney.—Is it an unheard of commercial discipline?

Mr. Macken.—It is restraint that prohibits the building up of any reserve for future re-investment.

Mr. Rice.—But then again may I say that the Prices Commission have their rules and they must go by the rules laid down for them.

20. Senator Cooney.—That is hardly a rule they apply to commercial companies, in the pure sense of the word?

Mr. Rice.—You will find this criticism even amongst the private sector.

21. Deputy B. Desmond.—A matter on which I should like some clarification is the basis on which the maize starch is purchased. Is this bought from a variety of sources?

Mr. Rice.—Yes. It is bought from international suppliers. We usually contract for about six months in advance, for perhaps 8,000 or 9,000 tons at a fixed price. We get applications mainly from continental suppliers.

22. Deputy B. Desmond.—Would this coincide with or would it be possible to cover the same period as the company’s glucose sales contracts?

Mr. Rice.—This is what we would try to do. But, in the last few years, we have not found our suppliers anxious to quote us for longer periods say, than six months. Again, I think it is because each August there is a change in the cereal legislation in the EEC which can alter the price of starch. Therefore, one cannot very well get quotations for more than six months.

23. Deputy B. Desmond.—In that setting do you actually budget ahead, or have you a projected budget within the company?

Mr. Rice.—Yes, we know at the beginning of each year. We try to formulate a policy of buying and selling. We estimate what the price is likely to be for the following six months even though we have not got a firm contract for it.

Mr. Macken.—Our annual production budget carries a projected maize starch price based on our expectation of what the price will be through the year, based on whatever information we can glean on what is the likely direction it will take.

24. Deputy B. Desmond.—Your average price for glucose for 1978 was £214 a ton. That you did not regard as being an economic price. It resulted in a loss. I am thinking in terms of, say, 1980: are you yet in a position to strike a figure for 1980 working forward even to the following year, on the basis of a non-loss situation? How would such an exercise within the company work out? I know it must be very difficult, with the MCAs, to try to forecast.

Mr. Rice.—This is one of the main reasons we found that we would have to do a certain amount of refurbishing of our plant, first of all. Our plant is fairly old. Therefore, it would be unwise to forecast one’s likely profit or loss on glucose because of the circumstances of the plant itself. It is not as efficient as it should be. This is the main reason that we submitted, and have had approved, a programme for refurbishing the plant in Ballina. I take the Deputy’s point but it would be very difficult to forecast.

25. Deputy B. Desmond.—To put a price on it?

Mr. Rice.—It would be very difficult.

26. Senator Cooney.—The cost of the raw materials in the glucose production in 1978 was greater than your sales price?

Mr. Rice.—That is true.

27. Senator Cooney.—Yet your figures for that year show a profit?

Mr. Hynes.—That probably came from alcohol.

Mr. Rice.—Yes. the other side.

28. Senator Cooney.—Alcohol was not able to do that the previous year, the loss was too big?

Mr. Rice.—No.

29. Senator Cooney.—What would the loss have been?

Mr. Macken.—The loss on glucose was something like 2½ per cent.

30. Chairman.—You import some glucose. Is that part of a general policy, or is it only when, for one reason or another, you run short of supplies for your customers?

Mr. Macken.—There are several aspects. First of all, there may be a particular grade which it does not suit us to manufacture, or the volume involved is relatively low. Secondly, our manufacturing capacity is lower than the market, so there has to be a certain level of imports anyway at present.

31. Chairman.—That is a permanent position at least at present?

Mr. Macken.—It is at present until we refurbish the plant. As of the end of next year we would hope that that situation would have reversed. Then one runs into occasional problems when the short-term demand is more than one’s manufacturing capacity and one must supplement it.

32. Senator Cooney.—Is the glucose market on an ascending graph?

Mr. Macken.—Generally, yes, but there are still seasonal aspects to the market.

33. Senator Cooney.—But the trend is upwards each year?

Mr. Macken.—Yes, upwards each year by about 10 per cent, or something like that.

34. Senator Cooney.—You mention in your submission that wheat starch extraction is being developed as a competitor to maize starch?

Mr. Macken.—That is right.

35. Senator Cooney.—Are there any advantages for the company if that process is found to be successful? At what stage is it?

Mr. Macken.—Our information is that it is a feasible proposition. The viability then depends on the economics. In other words, it has to compete eventually with maize starch.

36. Senator Cooney.—Where are those experiments being done?

Mr. Hynes.—There is a plant in existence, in Belgium, is it?

Mr. Rice.—Yes, one in Belgium and one in France. We cannot say who we are looking at it with. It is one of the things we hope to advance because we feel that if we had more control over our raw materials we would be in a much stronger position.

37. Senator Cooney.—That is what I was coming to. Is there any input from your company into this experimentation in new technology in wheat?

Mr. Hynes.—No, we did not have any input. We have had discussions with the company who have developed it. Indeed, we had discussions, in accordance with a Government instruction, on a potential joint venture at one stage with this company, and with other companies. We have a good relationship with them. We hope that, when the plant is fully established, we might be able to talk about the technology for Ireland.

38. Senator Cooney.—That you might be able to consider a plant in this country?

Mr. Hynes.—Yes.

Mr. Rice.—For wheat starch.

Mr. Macken.—We have acquired some of this wheat starch and ran it through the plant just to observe the operational problems associated with it.

Mr. Rice.—We did say that we would be able to produce glucose from wheat starch. It is that end that we have established. This is an ongoing thing. Our main problem and our first priority here is to get the plant as it is now into a proper state of efficiency and competitiveness. We will continue then to look at the other ways of developing starches for the plant. Our first priority is to update this plant sufficiently to enable us to sell glucose competitively on the home market.

39. Senator Cooney.—Then the company will look around for other sources?

Mr. Rice.—That is right.

40. Deputy O’Donnell.—The company are producing two types of alcohol and glucose and have ceased the production of starch.

Mr. Rice.—Potato starch, yes.

41. Deputy O’Donnell.—Is there an export potential for any of the products the company are producing?

Mr. Rice.—Yes. We currently supply 30 per cent of the glucose market in the North of Ireland.

42. Deputy O’Donnell.—Is there a possibility of expanding that?

Mr. Macken.—Yes, through marketing.

43. Deputy O’Donnell.—Have the company their own marketing organisation or are they using another agency?

Mr. Macken.—We are doing it ourselves at the moment.

44. Deputy O’Donnell.—I take it that the company are exploring markets in conjunction with Córas Tráchtála?

Mr. Macken.—We have had dealings with them.

45. Deputy O’Donnell.—Are the company optimistic about the export market potential?

Mr. Macken.—I am optimistic, just basing it on per capita consumption.

46. Deputy O’Donnell.—Is it possible to export glucose economically?

Mr. Macken.—It is possible to export it economically, say, to the North of Ireland. In England we are moving into a different situation, because of the cost of transporting by sea what is in effect a liquid, in the face of very intense competition at the moment.

47. Deputy O’Donnell.—The international glucose market is highly competitive and on the other hand the company would be hit by imports into Ireland also?

Mr. Macken.—That is right.

48. Deputy O’Donnell.—According to a note here, which is a bit complex, there appears to be some problem about the price here of the U.K. product—vis-à-vis the company’s price here.

Mr. Rice.—It is complicated.

49. Deputy O’Donnell.—Am I correct in saying that British glucose can be delivered here cheaper than the company could produce it here?

Mr. Macken.—At the moment one of the people sending glucose into Ireland is selling it at £3.50 a ton more than we are. A lot depends on the MCA’s and how they work out in practice. In theory, when he sends his glucose into Ireland the MCA’s are supposed to level the prices out. In practice, it does not happen that way because the British manufacturers are vertically integrated and they are in a situation where they can adjust their overheads.

50. Deputy O’Donnell.—Have they a competitive advantage?

Mr. Macken.—They have. Every ton of glucose they make means they have got rid of a ton of starch which means they have been able to make more gluten which is far more profitable.

51. Deputy O’Donnell.—There is an element of unfair competition then?

Mr. Macken.—It is a level at which we could not compete, because working backwards, knowing the cost of the various stages in the operation we would find it very difficult at times.

52. Deputy O’Donnell.—This could be serious for the company in the long-term, could it not?

Mr. Macken.—It could be, if the level dropped to a level where in fact they were charging a price that would not be very much more than the variable cost of the raw materials.

53. Chairman.—Is the recent green £ devaluation in the UK helpful to the company?

Mr. Macken.—Yes, and to the end users.

Deputy O’Donnell.—On marketing, are there not two types of alcohol, industrial alcohol and pure alcohol?

Chairman.—Perhaps we could finish with glucose before we go on to alcohol.

Deputy O’Donnell.—Certainly.

54. Deputy B. Desmond.—In relation to glucose, the company’s submission here indicates that because of a concerted attack by the EEC sugar lobby the company were not able to go ahead with the proposed joint venture with a major American company. I find that reference very interesting. Could we have an elaboration on that? Were the sugar lobby opposed to what one might call the development of a sweetener competing against them or was it just general opposition?

Mr. Hynes.—Sugar beet producers in the EEC provide all the sugar for the EEC, with the exception of the British. The EEC produces just about half their maize requirements and the rest is imported, but there was, in effect, a form of subsidy which supported the sweeteners made from maize, which included fructose. Fructose is a direct competitor with sugar in the soft drink business particularly. The resultant reaction to the sugar lobby was that the subsidy was removed at the very time when our negotiations had come to a head. That took some of the gilt off the ginger bread in the sense that fructose was no longer a favoured supported product. It was much more complicated at the same time in that we had difficulties with a major American producer who moved into the EEC as a producer. His arrival in a market which is already highly competitive, even with overcapacity, caused such an upheaval that people drew in their horns including our friends and decided that investment should be suspended. Indeed at that time one major investment in England by a Dutch company collapsed; the company collapsed and had to be dissolved and sold off in pieces by the Dutch Government. This major plant was in Tilbury and it was to produce fructose. We went through a traumatic experience just at that time. There was more to it than just the sugar lobby.

55. Deputy B. Desmond.—If the joint venture had come off, what sort of money would the Americans have been talking about putting into this country?

Mr. Hynes.—It would have been 49%/51% shareholding. In our approach we would have to have control of it.

56. Deputy B. Desmond.—In cash terms what would they put in—five million or six million dollars?

Mr. Hynes.—At that time we thought it would be in the order of about seven million dollars, so they would have been putting in about £3,500,000.

57. Deputy B. Desmond.—Anyway, it has not come.

Mr. Hynes.—It has not come. The potential output for the plant shrank considerably once fructose was removed from the picture.

58. Senator Cooney.—Have the company much choice in suppliers of raw materials for the glucose?

Mr. Rice.—We have. At the beginning of each year we used notify about four or five suppliers, but in recent years it has evolved down to about two major suppliers. We always hold back a certain amount of our orders in case a job lot of starch comes on the market at a cheap price. This used to favour us very much years ago, prior to the EEC, because we import the starch into Ballina port in lots of about 500 tons. This is the way we try to buy our starch competitively and it is true that we buy starch cheaper than anybody else in Europe.

59. Senator Cooney.—Is it diplomatic to tell us why?

Mr. Hynes.—People have to know their friends.

Mr. Rice.—Another thing is that at the moment there is a surplus capacity for starch production in Europe and therefore we can hammer a little bit to get the price down. It really relates to timing.

60. Chairman.—Is that the reason why the company have not examined the possibilities of wheat starch and potato starch?

Mr. Rice.—That is not the reason; we have examined the possibility.

61. Senator Cooney.—Have the company examined it and discarded it?

Mr. Macken.—We have not discarded it. Potato starch can be ruled out because it is not economic nor is it likely to be.

Mr. Rice.—Even if the potatoes were available.

Mr. Hynes.—Because the costs are too high. Mr. Macken said earlier in his evidence that our first objective was to get the existing plant running properly, to increase its capacity and to get the efficiency right. The second objective was to get the wheat starch operation going. We are not lagging at the wheat starch, because the wheat starch plant we are speaking of is only running for about a year. This type of plant must run for a while. Everybody knows how to make glucose out of wheat starch. The problem is that normally the pollution levels are totally unacceptable. The new technology has removed that difficulty. That is the technology we are after. We must first get our house in order and then switch to a new starch source.

62. Chairman.—You still think that wheat starch might prove to be a viable proposition?

Mr. Hynes.—Yes. It is the best prospect for the company because apart from anything else it is an Irish raw material. We would buy it in Irish pounds not in French francs or in dollars, so we will not have this problem with the exchange rates which also hurt us deeply.

63. Senator Cooney.—That would envisage refining the wheat here?

Mr. Hynes.—Yes.

64. Senator Cooney.—The experiments going on at the moment in that area have been done on the Continent?

Mr. Hynes.—That is right. The plant is actually running.

Mr. Rice.—Wheat starch is made already. There has been a known process for the manufacture of wheat starch for a long time.

65. Senator Cooney.—That is not new?

Mr. Rice.—Mr. Hynes says that there is a new process which has not been fully carried out yet.

Mr. Hynes.—A new process which reduces the pollution levels is what we want to see properly established. We are in regular contact with the operators of this plant. It is the next priority for us.

66. Senator Cooney.—Would your plant, designed for dealing with maize starch, be capable of dealing with wheat starch without much adjustment?

Mr. Hynes.—Yes.

Mr. Macken.—Yes. We bought wheat starch and we ran it through the plants to test it.

Mr. Rice.—The same plant would not manufacture starch from wheat as would manufacture starch from maize. We would need two different plants.

Senator Cooney.—That is the point I was making.

Chairman.—Two of us have to leave for Seanad Divisions and Deputy Desmond will carry on in the Chair.

Deputy Barry Desmond took the Chair.

67. Acting Chairman.—The company have an approved programme for £1.3 million for the refurbishing of the glucose plant at Corroy. What exactly does the programme consist of?

Mr. Macken.—It will do a number of things. The existing plant has become unreliable. In 1978 we lost several months production through breakdowns. To maintain the supply to the market anyway we must make the plant reliable. Secondly, the old plant is far less efficient than its modern equivalent, so we hope to improve the efficiency of the materials handling, the conversion, the filtration, evaporation and so on. We expect, for instance, to reduce the energy cost per ton by about 50 per cent and increase conversion efficiency by about 2 per cent. Overall the total efficiency and capacity of the plant would be increased.

68. Acting Chairman.—Will the £1.3 million be enough? In the past capital allocations have proved to be notoriously underestimated by both Government Departments and developers.

Mr. Hynes.—The Acting Chairman has a point, but the answer is yes.

Mr. Macken.—We expect it to be.

69. Acting Chairman.—Will it affect profitability generally?

Mr. Macken.—Yes, if we can get the capacity straight away up to 17,500 tons. Immediately after we would go up to 25,000 tons by changing the working week. At the moment we work what is called a three-shift system which is a five-day week. We can get an extra two days a week production by changing to a four-shift system, which gives us an extra two days production per week.

70. Acting Chairman.—Is the local market worth any more than about £1.3 million for refurbishing? If the company got £4 million or £5 million would it make a great difference?

Mr. Macken.—If we got £6 million we could build a complete new glucose factory. The size of the market at the moment would not be big enough to make that economical. This is one of our problems. If the market was under 40,000 tons per year, we would have to run the factory at that level of capacity for the operation to be economical, but we would be left with trying to bridge that gap through exports, in face of competition which is very intense now and will be for the next number of years.

71. Acting Chairman.—What is the position regarding the Labbadish factory? It is 20 years since I was inside that factory.

Dr. Owens.—It is carefully maintained.

72. Acting Chairman.—It is 20 years ago since I fought there as a trade union official, but what is the position now?

Dr. Owens.—It is carefully maintained in very good order. The plant and buildings are in good shape. It was our idea to look at other possibilities bearing in mind that Labbadish could be useful if the right thing came up. It certainly is not written off in that sense. Indeed, to have the right sort of land serviced with buildings on it is worth a fair bit today, so it is a useful thing to have and we are not neglecting it. We would bear in mind the obvious considerations of the area, in discussion with the IDA.

Mr. Hynes.—One can go up and find that the last bag of potato starch is still hanging on the unit on which it was filled —it is only half full but it is still there.

73. Acting Chairman.—Has the industrial trouble in the glucose plants in 1977 been completely resolved now?

Mr. Rice.—Yes, it was completely resolved. This related to supervisory staff at the time and we were restricted in our negotiations because of the national award and because of the Department of the Public Service. Since the new agreement the matter was discussed at the Labour Court which made certain recommendations which we carried out.

74. Acting Chairman.—When the refurbishing is completed will the four-shift system come into operation?

Mr. Macken.—Hopefully, yes. We have already had discussions with our staff on this. In principle there is no problem. Certain aspects have to be clarified before we hammer out pounds, shillings and pence, and manning levels. Until we get the detailed design done we will not have resolved manning levels for the different operations.

Mr Rice.—Then again there is no point in four-shift working until you are fairly certain that the market is there.

75. Acting Chairman.—If you go on to the four-shift system would that give rise to some increase in employment?

Mr. Macken.—We would hope to do the refurbishing, go to a four-shift system and maintain, say, an increased efficiency of manning which would not necessarily increase employment but would maintain existing employment.

76. Acting Chairman.—Another question about staffing: you would keep your own headquarters staff at around 23?

Mr. Macken.—That is right.

77. Acting Chairman.—How many are engaged in what one would call pure research? My knowledge in the field is limited. But in a State-sponsored body of your size how many would be engaged in, say, pure R and D work? Have you ever got money from the State to do that kind of work?

Mr. Rice.—Only recently—since Dr. Owens came to our staff last year—have we begun that type of work.

Dr. Owens.—The position is that nobody does it fulltime because we think, with a company of our size, it is better to control it and then farm it out to some extent. We have managed to get an IDA R and D grant. We are trying, as far as possible, to use people in Irish universities, or other institutions, which I think is a good system for us because we can control it and not use too much of our own time. The work is being done in Ireland. There are some very good people in Irish institutions. It is a good compromise.

78. Acting Chairman.—Have you been able to have any successes in this field yet?

Dr. Owens.—Well, it is early days yet but I am hopeful that we will do some useful work in that way.

79. Deputy O’Donnell.—You started in 1947, is that correct?

Mr. Rice.—1937.

80. Deputy O’Donnell.—You were set up in a totally different economic climate from the present one. Since then there have been enormous developments in fine chemicals and so on. I note with interest, from the documents I have been reading, that you were carrying out a tentative or perhaps more advanced investigation into the possibility of going into the field of fine chemicals. This would appear to me to be a very logical type of development, bearing in mind the fact that you are stuck with the same products practically all the time. What are the possibilities of developing a fine chemicals business as an adjunct to or offshoot of your existing production? This is very important because there have been a number of international companies in the field of fine chemicals located here in recent years. I do not know whether you would scientifically call pharmaceuticals fine chemicals, but you know what I am getting at. I should like to know the prospects here. What are your plans?

Dr. Owens.—Well, indeed, I take the Deputy’s point and I will try to answer it like this. It is logical for any company nowadays to seek to broaden its base; you cannot stay as you always were because things change. Ceimicí Teoranta, whether a State company, or private company, has to do the same. There have been a number of directives from the Government and the Department in recent years saying the same thing, which is completely logical. I feel that there is a good basis for doing something with fine chemicals in Ireland, partly because of Ireland’s membership of the EEC over the last few years—that is a big market—partly because of the IDA grant incentives, which are very generous and partly, as you remarked, because of the growth of the chemical industry in Ireland which could create certain new opportunities. We thought it wisest to look at possible joint ventures with companies abroad, in a certain area of technology and, in this way, try to transfer technology into this country and into our own company. Some of us know from experience elsewhere that it is difficult starting off on something like this. You may know where you are going, you may have the right products, but you might not get exactly the right combination on your first day and that, of course, increases the risks and the losses. We thought it logical to look at possibilities. I have already begun to talk to companies abroad. I would say the first response is encouraging. There seems to be an interest in working with us. People seem to be aware of the advantages Ireland offers in that sphere. Although our company is not really into chemicals to that extent, distillation is an operation which involves a fair level of technology; the glucose enzyme conversion is similar in a way. We feel it looks reasonable for a company like ours to want to move in that direction. The benefits we might reap from a fine chemical operation might also come back into the company and strengthen its base generally.

81. Deputy O’Donnell.—Would you be of the opinion that a joint venture is the obvious way to approach this?

Dr. Owens.—If it can be done it is certainly a good idea. Nowadays a joint venture is seen as a very good way into a new business by any company no matter what its size. It is certainly possible to do it without a joint venture. Indeed another option which could be available to us might be to get a licence and know-how in that way. Nor are we ignoring the idea that with Ireland’s possibilities something can be done. I think the joint venture is a reasonable way for us to look but we will not ignore the other possibilities.

82. Deputy O’Donnell.—There is another aspect. We have succeeded very well in recent years in attracting major international pharmaceutical companies to this country. Are there prospects for Ceimicí Teoranta to supply some of the raw materials being utilised by those pharmaceutical companies, such as Merck, Sharp and Dohme and Syntex, in my area? Should it not be possible for Ceimicí Teoranta to look at the possibility of supplying some of the raw materials? Is that feasible or not?

Dr. Owens.—It is well known that most of these companies would “Buy Irish” if possible. The trouble is that there are very few companies in Ireland which are able to supply them. In our case it is well worth looking at. Because of the size of the market—and they tend to be very specialised— I do not know whether you could ever set up a plant to service the one industry or the other. But, on the other hand, if you went into a particular area of manufacture it would be possible to supply some of these companies.

83. Deputy O’Donnell.—This would imply an extension of the research facilities of Ceimicí Teoranta. To what degree have you engaged in research into new products?: have you a special section or division? In recent times here a number of companies set up special research laboratories with a view to developing new products. It is a very important aspect of the expansion of Irish industry. I would like to see—as I am sure would my colleagues—an Irish company like Ceimicí Teoranta being in on this. I know it perhaps might create a new dimension in the company’s existing mandate and terms of reference. Have the company any observations on that? In the pharmaceutical industry, very high technology is involved. When we talk about supplying some of the raw materials for Syntex in my area, Merck, Sharp and Dohme or the others we are talking about very sophisticated research facilities being available to Ceimicí Teoranta. Have Ceimicí Teoranta considered this aspect of it?

Dr. Owens.—We would agree in principle with the Deputy. Before I came to Ceimicí Teoranta I worked for a number of companies, including German companies, which do this kind of thing. We do not want to engage in fundamental research because that is very expensive and we have to remember not only our financial resources but also the number of people we can employ to manage a project. Within those limitations. we can supplement our resources with good people elsewhere in Ireland, including the university people and perhaps some Irish people who have gained appropriate exerience working abroad: this could be an interesting new development.

84. Acting Chairman.—Is there not a danger that as a State-sponsored company if you farm out research and development to a considerable extent, it will finish up with some smart operator among the multinationals?

Dr. Owens.—No. We would retain control. I appreciate the Deputy’s point and he is absolutely right. Research and development is a great way to throw money away, unless one knows exactly where one is going. That is what I meant about fundamental research. A lot of our research would relate to applying things to our circumstances which is a legitimate kind of applied R and D.

85. Acting Chairman.—The company’s legislative mandate appears to be restrictive on the licensing side and on chemical production generally. Would you comment on that?

Dr. Owens.—We suggested in the document submitted to the Committee that some of the background ideas of the 1947 Act have been superseded in a way, for instance, the question of controlling imports of chemicals. Effectively, the Common Market area is a free market for chemicals and the country does not need the same kind of protection now. For a similar reason we feel that, provided we show that we are acting reasonably and are proposing good projects, there is no need to have these sorts of restrictions. We would welcome a broadening of the base in a reasonable way.

86. Acting Chairman.—I agree. As regards the share capital of the company——

Mr. Hynes.—The share capital is nominal. It was set at £500,000 in 1938 and has remained unchanged since then.

87. Acting Chairman.—Surely in this day and age your share capital is in the context of a fair-sized builder rather than a State-sponsored body?

Mr. Hynes.—That is right.

88. Acting Chairman.—Do the company want £10 million?

Mr. Hynes.—Having started at such a low figure it is suggested that an adjustment of legislation will be required in any event to make more capital available to the company. We felt that the existing legislation should be modified and that we should have provision for a nominal capital of £10 million. That does not necessarily mean that a project of ours would be limited to £10 million. Trying to attract a partner in any venture when one’s share capital is a very small amount does not make it very attractive to them.

Acting Chairman.—I share that view.

Dr. Owens.—One other point which we implied which is also fairly clear is that whether in glucose, alcohol or chemicals, if one wants to go into a joint venture with another company within the State or abroad. one of the things they look at is one’s equity base, equity ratios and the way in which one finances one’s company and so on. Thirty years ago things were different. Nowadays one would have a more flexible attitude and we also went into that in our written submission.

89. Deputy O’Donnell.—Ceimicí Teoranta is a State chemical company really. It was set up many years ago in totally different circumstances to supply what was more or less a guaranteed market. In view of the enormous growth and development of fine chemicals throughout the world since the war, are there strong possibilities as to whether the research scope of Ceimicí Teoranta could be widened in conjunction with the new National Board for Science and Technology, the universities and so forth? The company have been thinking maybe not as widely as that. Nevertheless I would like to see a State company exploring possibilities for new products, particularly in relation to supplying the raw materials to new chemical companies and so forth. I am not being critical, I am just exploring possibilities from the point of view of looking to the future in that regard. I am satisfied with what the company have said. On the current problem of energy, petrol and so forth, I am intrigued with one of the company’s outlets for industrial alcohol. It is called “P.M.S.”—Power Methylated Spirits. Is it for the petrol companies?

Mr. Hynes.—Yes.

90. Deputy O’Donnell.—How did this happen? What is the raison d’étre in modern times for this?

Mr. Hynes.—It has an historical background. The original Ceimicí Teoranta was the alcohol factories of Ireland under the 1938 Act. That Act provided that the company would make alcohol from potatoes and that the petrol companies would be allocated alcohol to mix with their petrol. This is all statutory. It has continued ever since and we make industrial alcohol for that purpose. The amount we produce is about 0.3 per cent as an additive to the petrol. The oil companies, in the past, groaned a bit but in recent years they are not groaning at all. They do not seem to find it a particular burden.

91. Deputy O’Donnell.—Is this additive essential to the petrol companies? Is it an advantage for the petrol companies to have this available?

Mr. Hynes.—We would like to say it is, but I do not think they would agree. After all they are sellers of petrol.

92. Deputy O’Donnell.—They have no option but to add it?

Mr. Hynes.—As the law stands at the moment they have no option, but while they groaned a bit and showed some resistance I would not describe them as favourably disposed but virtually favourably disposed to use it now.

93. Deputy O’Donnell.—They must add about 0.3 per cent?

Mr. Hynes.—Yes. It could go much higher. Technically, so far as motor engines are concerned, it could go up as far as 10 per cent.

Dr. Owens.—We have discussed it with the National Board for Science and Technology. This new board has been given this sort of job. We would discuss all these aspects with them, with the Department and other bodies. We are aware of the interest in the developments and we will follow them up carefully.

94. Deputy O’Donnell.—Has it implications for the whole energy debate? Your chairman has said that it is possible to increase this from 0.3 per cent to 10 per cent. Is 10 per cent the absolute maximum?

Mr. Rice.—The maximum is 10 per cent.

Mr. Hynes.—As I understand it, standard motor car engines may run quite well on a mix of 10 per cent alcohol. It is possible, of course, with modified carburettors, to run on 100 per cent alcohol, as they are doing in Brazil at present. There is 100 per cent alcohol being used in most Government vehicles in Brazil.

95. Deputy O’Donnell.—In Brazil what is the alcohol derived from?

Mr. Hynes.—Brazil was a major exporter of molasses, the biggest producer of sugar and sugar cane. They have very large supplies of molasses. They are now building new plants to convert molasses into PMS which is used to propel motor vehicles. But the carburettors are modified for that purpose. As importers of molasses it would not necessarily be economic here.

Mr. Rice.—I think the Deputy was wondering if it would be advantageous to add it to certain grades of petrol. Our belief is that it would be advantageous because it has a certain octane grading. It is the only additive that can be used with petrol at present that is consumed and does not create any environmental problem. At present they use lead tetra ethyl in the petrol to give it a boost, and improve the octane rating. Alcohol could have the same effect on certain grades of petrol; that is our belief.

96. Acting Chairman.—If I might go from the motor car to the bottle. A major success of your company has been the tremendous sales to one of the major Irish independent distillers. The success rate seems to be quite phenomenal. Is it going to continue?

Mr. Hynes.—It is a very new development.

Dr. Owens.—We think that a lot of developments in the drink market are volatile; consumer preferences account for a lot. Sometimes when particular drinks catch on they seem to do very well. As the Committee know, other drinks which seem to be promoted with the same degree of effort never catch on. We are trying to make a good quality product available to all of them.

Senator Eoin Ryan took the Chair.

97. Deputy B. Desmond.—Are the Irish Distillers Group likely to——

Mr. Rice.—We started really on an experimental basis in late 1968. Our feeling then was that it would not be wise to be too dependent on the power methylated spirits. We did this without any great support from the Department or from anybody else. We were very much alive to the fact that the people you mention might be injured. We were then making a spirit from molasses which was distinctive. After some years we eventually got approval to supply one customer with a molasses spirit We maintained that he wanted a molasses spirit and, if we did not supply him, it would have to be imported.

98. Deputy B. Desmond.—That started about 1970?

Mr. Rice.—That is when we got into the business. Yes, about 1968-1970.

99. Deputy B. Desmond.—At the present rate of growth, it is fair to say that in a few years’ time, even with the volatility referred to, production could be three-quarters of a million gallons a year, which is enormous in terms of sales. I am worried about the prospect of your company being so very heavily committed in one area. What is your reaction?

Mr. Rice.—I do not think we are that heavily committed. Increased sales would not be a sufficient reason to invest a lot of capital, say, into doubling the size of your plant. Our feeling is that one would be consolidating one’s position in the market place.

Dr. Owens.—There are further points. We think that the quality of the product will have improved considerably. That is what really counts. It does not matter who you are, if you have a good quality product that is the best way to start. If you do not make a good quality product, then you have no business being there. At least we are aware of that. The other point is that we are trying very hard to become more cost-efficient. That is one of the points in our proposal. But we are aware of the difficulties ahead.

100. Deputy B. Desmond.—I know we are in public session, but what would happen if there was a scenario in which, for the sake of argument, Irish Distillers took over that company? Presumably they would not continue to take 600,000 gallons of potable alcohol, or would they? What would be the prospect of their so doing? I am not suggesting that there is anything in the air, but would they be likely to do that?

Mr. Rice.—We are realistic enough to know that we must seek other markets. We must improve the efficiency of our production and the quality of the product to compete on the export market.

101. Deputy B. Desmond.—Is the Cooley distillation unit related to that?

Dr. Owens.—We make potable alcohol in both distilleries. We have, in effect, two distilleries at each location, one making industrial and one making potable in each of the two factories. The potable plant at Cooley was largely re-done in 1977 but the one at Carndonagh was not re-done at all.

102. Deputy B. Desmond.—You maintain a very high level of quality. For example, in the export trade, would it have an American certification in terms of spirit?

Dr. Owens.—There is a sort of geographical division in terms of spirit quality. We, people on the neighbouring island, and Americans tend to have a distinct preference for certain kinds of spirits whereas continental Europeans tend to have a different kind of preference. In spirit quality one often finds that a very subjective judgment is made. Therefore one tries to follow the trends of one’s customers. In that sense, good quality is getting one’s customers’ preference right, or as accurately as one can. We have been trying to do that and our recent efforts have been quite successful.

Deputy B. Desmond.—Yes, indeed, very much so.

103. Chairman.—In general terms is good alcohol or what you would describe as an acceptable alcohol to a certain area an easily marketable commodity? Is it a buyers’ market or a sellers’ market?

Dr. Owens.—We sell to quite a number of Irish companies and each buyer tends to have his distinctive image and preference when one looks at the marketing effort made by many of these companies. The easiest answer is that there is no general market for any one product. One must be able to supply a number of products. We hope to bear these things in mind and to improve as we go on.

104. Deputy B. Desmond.—How do the company strike a price? Is it very competitive? Is it dependent on the export market?

Dr. Owens.—Negotiation, basically. This is the best way of working it out.

105. Chairman.—As regards a possible ethyl alcohol project, what progress has been made?

Mr. Hynes.—As the Committee know, our alcohol production at the moment is based on molasses. We are working on the possibility of finding another feedstock preferably from Irish production. Discussions and investigations on that are at an early stage. We are seeking to find a national feedstock, as we are for glucose, for alcohol production. This is not easy. Fermentation and biomass is a big problem.

106. Senator Cooney.—Who is doing the research for the company in that area?

Dr. Owens.—We can do some of that ourselves. Since 1 January we hired six technically trained people, some were replacements and some were to extend our capabilities. We are looking at all the various ways of improving quality or quantity and we are emphasising very much our desire to use native raw material. That obviously applies to both kinds of alcohol. It is probably fair to say that fermentation techniques which were felt earlier to be rather more expensive will in a time of dear energy, or increasing shortages or prices come into their own again. It is a very good thing to be looking at that and to be involved.

107. Senator Cooney.—Is there any reason to be encouraged or to be hopeful about devising a new process, or new base stock?

Dr. Owens.—There is nothing absolutely revolutionary here, many of these things have been done in the past. Other people in other countries will be digging things out. In the past they may not have worked for some reason, but they could work now because things have changed.

108. Senator Cooney.—Would the ethyl alcohol be sold to the same market—to the petrol companies?

Dr. Owens.—Provided it is in the national interest we feel it would be fair for us to make as strong and logical a case as we can. Obviously we would have to discuss that with the parties concerned, the oil companies and the various Government Departments. It could be a good policy for Ireland to have but there are various factors to be considered. We feel it is our responsibility to explain this clearly to people. If it seems a good idea to develop such a project we would expect to go ahead and put it into practice through this kind of “market research” stage.

109. Chairman.—The company’s accounts do not distinguish the profitability between PMS and potable spirit. What in general terms is the position? Which is more profitable?

Mr. Hynes.—They are about the same. Up to a while ago, PMS might have been slightly ahead but at the moment they are about neck and neck. It is the only comfortable part of the company, in the sense that glucose has been losing money.

110. Chairman.—Do the company not fix their own profit as far as alcohol is concerned?

Mr. Hynes.—No.

111. Chairman.—In the sense that the Minister can fix it?

Dr. Owens.—Yes, but a good part of our alcohol production is potable alcohol.

112. Chairman.—But in relation to the PMS?

Mr. Hynes.—The Minister is entitled to decide the price. I assure the Committee that the Department have never shown a great anxiety for fixing a high price. We usually have to struggle with them to establish a justification for the price.

Dr. Owens.—It is fair to say that we have a very modest return by any commercial standards.

113. Chairman.—In which? In the industrial alcohol?

Dr. Owens.—In the PMS.

114. Chairman.—What are the arguments against fixing it higher than it has been fixed in recent years? Why would the Department refuse a suggestion by the company that the price should be higher than they have fixed it?

Mr. Hynes.—It is dearer than petrol. No Department is anxious to give a State company an easy living. If the price is fixed high they can always relax and not bother about efficiencies. We have to prove that our price is justified. This is the reason, for instance, for re-furbishing this glucose plant. It was not efficient. It was a plant which had been brought up from a capacity of 6,000 tons a year to 14,000 tons a year over a period of years. All the units were in very bad shape.

Mr. Rice.—The company did this from their own resources. This is the first time that the company have ever sought any money.

115. Chairman.—A marginally higher price for PMS could be a considerable advantage to the company and as far as the petrol companies are concerned it would have negligible impact on their total sales. Is that correct?

Mr. Hynes.—That is correct, but we do not like to presume on that. After all, if these companies were annoyed and irritated, legislation is not compatible now with present EEC rules and regulations. If they wanted to get stuffy about it they could create problems. For us PMS has an historical background. That is where the company started. They started it for a different purpose altogether—to develop an outlet for off-grade potatoes in the old days. It was to a degree a social effort. It is with us still and until we develop the company in other lines we need this PMS outlet. We realise that it is a charge really on the motorists.

Dr. Owens.—To look at it in a positive sense, it is fair to say that a good deal has been written and spoken about gashol in recent times. It is clear to everybody that gashol cannot be cheaper than petrol. Its advantage is that it supplements petrol stocks. It is being done in the United States and Sweden, apart from Brazil. Every state has its own rules. There are good reasons for supposing that it is a sensible policy to look at first. We cannot rest on our historical laurels for ever. If our case is put reasonably, if people look at the facts and make a positive judgment, we think that all parties in Ireland will co-operate on that basis. That would be a better basis for us in the future. In that sense we would not rely on statutes, or anything like that; we would have a reasonable policy which could be clearly demonstrated.

Mr. Hynes.—I am sure everybody would be glad at the moment if we could increase the petrol stock by 10 per cent, for instance.

Dr. Owens.—Or even in stages up to that level.

116. Senator Cooney.—Have you had discussions with the petrol companies with a view to achieving that stage and getting away from the unreality of looking at a circumstance that is no longer relevant?

Mr. Hynes.—I have had some talks with the managing directors of distributing companies here on an informal basis which established a degree of goodwill, if I may put it that way. But we have not talked to them about possible expansion up to 10 per cent. We must first sort ourselves out to see could we achieve that with an appropriate Irish feed stock. Otherwise we are only converting some imported materials into material which replaces imported materials, which may not necessarily be sensible.

Dr. Owens.—Our initial aim would be a much more modest target. Indeed, our reequipment plan was designed to make us more cost-efficient than we are. We think there will be a modest gain. We think it is reasonable to proceed in stages and looking at the various stages to ascertain whether it makes sense to go any further down one particular path. Therefore, we anticipate a number of these stages.

117. Senator Cooney.—I do not know if anybody asked this question while I was absent. In your submission you made a reference that you were considering expanding into a fine chemical operation.

Mr. Hynes.—Yes. Dr. Owens explained that.

Senator Cooney.—I see. You have discussed that.

Mr. Hynes.—We could be talking of fine chemicals, of the qualities that are sold, as such, or intermediate fine chemicals which are used by other companies like the multinationals in their production.

118. Deputy B. Desmond.—You would be very popular with this Committee if you produced a synthetic fuel.

Dr. Owens.—We will do our best.

119. Chairman.—You will want to try it out, though, extensively?

Dr. Owens.—We are, in fact, talking to the NBST. We know they are looking at various options. They are a new body; they have only been going for a year or so. At the Biomass Conference in May, for instance, another option talked about was short-term forestry for rotation for the ESB’s purposes. It is a good thing for us now because we have not found oil yet. There may be oil out there but, for a country like ours, it makes sense to look at the various options and we would like to help in our particular way.

120. Senator Cooney.—Your figures for trade debtors show a fairly wide fluctuation as between different years—1975, £350,000; 1977, £550,000; 1978 down to £429,000. What is the cause of this? It seems a very high level of credit to have allowed.

Mr. Rice.—Our credit arrangement with customers—on the glucose side mainly— is usually a month after the month of invoice, so it works out at about six weeks. You must also appreciate that the cost price of glucose has gone up in those years.

121. Senator Cooney.—I suppose that is why credit is high. But it seems a high figure to tolerate, nearly half a million last year in trade debtors and pre-payments.

Mr. Hynes.—We think we are paid fairly well actually.

122. Senator Cooney.—You think it is not high?

Mr. Rice.—If you are selling 1,500 tons of glucose per month at £200 a ton you are going to be out of that for the best part of two months.

123. Senator Cooney.—That is your norm?

Mr. Rice.—We try to get it in about six weeks. Probably the average is about six to seven weeks. This is one of the reasons our customers appreciate it. Some customers have to pay on the nail, or within two weeks or so. Therefore, it is to the advantage of the confectionery industry that we adopt it. It used to be two to three weeks but, in order to facilitate the confectionery industry, it was extended to the month after the month of invoice which averages out at about six to seven weeks.

124. Senator Cooney.—Your accounts are on an historical cost basis. Have you ever had discussions with your auditor about it, perhaps replacing that by some other basis?

Mr. Rice.—Yes, we have. The reason that was put in was to distinguish it from inflation accounting.

125. Senator Cooney.—Are you happy to leave it on that basis?

Mr. Hynes.—For the present yes.

Mr. Rice.—For the present, yes because, if we start adjusting our figures it might not show as true a picture. We think that the figures supplied are a true and fair account. We are not trying to hide anything.

126. Senator Cooney.—I am not suggesting that. I just wondered if a change would have any significance for future investment and your capital requirements?

Dr. Owens.—I suppose stockholding would be one feature of that. The auditor is looking at that. Accountants are conservative men but no doubt they will eventually get around to it.

Chairman.—Thank you very much, gentlemen. When we read the evidence some further questions may occur to us. We should like to get in touch with you if that occurs.

Mr. Hynes.—I am sure the Committee will realise that we are at a development stage at present with this company; we are moving upwards, we hope.

The witnesses withdrew.

*See Appendix 2.