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APPENDIX 8STATEMENT SUBMITTED BY MR. J. B. HYNES, FORMER MANAGING DIRECTOR OF NÍTRIGIN ÉIREANN TEORANTA, TO COMMITTEE AT ITS MEETING ON 15 OCTOBER 1980*Chairman, I would like the opportunity to reply to questions raised at the last hearing about when cost estimates for the Marino Point project were submitted to Government, with particular reference to the end of 1974 when the Government gave approval in principle to the project. I have had the opportunity since the last hearing to refresh my memory by having access to the NET files on the subject. I believe a file of the relevant documents has been submitted to the Committee. These documents are important if the Committee is to get a full understanding of the official attitude towards financing of a major project by a State-sponsored body. Copies of all the relevant correspondence with the Departments about the necessity for equity in respect of the Marino Point Project have been included in that file of documents. While I will elaborate on this, I would like to summarise briefly the official policy towards such a project, namely that while Government Departments will approve a development programme, as they did in our case, they will strongly contend that no Exchequer finance should be involved. Therein lies the understandable difference in approach between Civil Servants and Executives of State bodies who are asked to be enterprising in undertaking development programmes. Enterprise, yes, but of course they should not expect the State to finance it. To reply to the specific question about the Marino Point project costs in 1974, it should be understood that while all the negotiations with the Departments and the financial institutions were proceeding, I was also full-time engaged in the Kinsale Head gas negotiations. My recollections of events therefore, was somewhat faulty until I had the opportunity of refreshing my memory last week. From the outset the Marino Point Project had the problem that the Department of Finance was not prepared to accept NET’s request that equity capital should be made available in respect of the capital investment which would be required. In 1972/73 NET considered that it would be impossible to proceed with the Project without a substantial injection of equity because of the magnitude of the operation, the long period which would elapse before the project generated a cash flow and because the Company had financed substantial new investment in fertilizer production, and the Wallboard Plant at Arklow entirely on borrowed capital. Unfortunately, no progress was achieved in this respect during 1973. Early in 1974 NET were forced, in an attempt to make a break through in relation to a new capital issue to propose, as a minimum, that equity capital of £15m. be issued to the Company spread over the three year construction period and that an IDA Grant (subsequently negotiated with the IDA at £5m.) should also be payable. As the correspondence shows, no progress was made in this respect either right through 1974. In the meantime, negotiations with contractors were brought to a head by September/October, 1974. Negotiations with the financial institutions were also brought to a head, unsuccessfully however in the absence of any promise of new equity. In those circumstances, it was not possible to enter into a commitment with the Contractor as had been intended in October, 1974. The problems of the Company were further compounded by the negotiations with Marathon in relation to a contract on behalf of the Government in respect of Kinsale Head Gas. These negotiations were prolonged particularly because of problems encountered in drafting the contract with Marathon which had to regulate the rights and responsibilities of the parties thereto over the life of the gasfield which was expected to be 21 years. These negotiations continued through 1974 and finally envisaged gas deliveries on a firm contractual basis by the 1st March, 1978. As the contract was to be on a “Take or Pay” basis it was considered important that the Marino Point project should be constructed, commissioned and ready to take gas by that date. On the basis of the 36 month construction and commissioning schedule envisaged at that time, this was a reasonable expectation, provided that the contractor could be appointed before the end of 1974. The position by the end of November, 1974 was that (a)a Government decision about equity, IDA Grant and increased borrowing powers was awaited. (b)the contract with Marathon for deliveries of Kinsale Head gas was in the final stages of negotiations (the Company’s report and the draft of the final contract were submitted to the Minister for Industry & Commerce on 9th January, 1975) and (c)the Board of NET had decided that it would not be possible to go ahead with the Marino Point Project unless at least £15m. equity, and IDA Grant and increased borrowing powers could be assured. The Company were informed by letter dated 27th November, 1974 that “at a meeting held yesterday the Government gave approval, in principle, to the following proposals:— (i)To increase the Company’s authorised share capital from the existing £7.5m. provided under the Nítrigin Éireann Teor. Acts 1963 and 1970 to £27.5m. (ii)To increase from £2m to £7m the Company’s facility to borrow under Ministerial Guarantee. (iii)The making by the IDA of a grant of £5m. towards the project. As this decision was considered to be entirely inadequate to meet the minimum requirement of the Board of NET, a meeting was arranged with the Departments of Finance and Industry & Commerce on 3rd December, 1974. This meeting was designed to resolve finally whether or not the Government would provide the extra equity, grant and borrowing powers which were considered essential by the Company in the light of the views expressed by their financial advisers. It was made clear at the meeting that the Board of NET would not proceed with the project unless adequate share capital finance was made available. As the report of the meeting makes clear, the overriding consideration at the meeting was the provision of equity capital of £15m. and an increase in the Company’s borrowing powers to £20m. which the Company insisted was essential if the necessary borrowings were to be secured from their bankers and other financial institutions and if the project was to be undertaken by NET. It was made clear that the cost of the project had continued to escalate, but the main pressure by the officials of the Department of Finance continued to be that equity would not be made available. It was finally agreed at the meeting on 3rd December, 1974 that the matter would have to be referred back to the Government as the NET representatives made it clear that the project would have to be abandoned. None of the Officials considered that this should be done. As the company continued to be generally concerned about the equity issue further correspondence was addressed to the Departments until the matter was rectified by a decision of the Government on 6th January, 1975 to issue £15m. as equity, and to increase the Company’s borrowing powers to £20m. as had been requested by the Company. As to the Capital Cost figure which we have been informed had been considered by the Government at their meeting on 26th November, 1974, this figure of £42 million was supplied by the IDA as the cost of the “eligible fixed assets” involved in the project in support of their recommendation for a £5m grant. The relationship between this £42m. and the then current NET estimate of the financial package required to implement the project, viz. £65m. was fully explained by the then Minister for Industry & Commerce in Dáil Éireann on 23rd July, 1975 as follows:— “The Capital Cost of the project is estimated at £42 million and allowing for other costs such as working capital requirements, price escalation, pre-production expenses and pre-production interest repayments, the total cost could be as high as £63.5m.” It will be evident from the foregoing and from the copies of the correspondence in the file which you have that at no stage did the Company fail to keep the Departments fully informed of all developments in connection with the Marino Point Project. J.B. HYNES, 15th October, 1980. |
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