Committee Reports > List of Committees > Joint > 1981 > Committee on State Sponsored Bodies > Report No. 16 - Nitrigin Eireann Teoranta

MIONTUAIRISC NA FIANAISE

(Minutes of Evidence)

Dé Céadaoin, 25 Meitheamh, 1980

Wednesday, 25 June, 1980

Members Present:

SENATOR EOIN RYAN in the chair

NÍTRIGIN ÉIREANN TEORANTA

Professor J. P. O’Donnell, Chairman; Mr. G. T. Paul Conlon, Managing Director; Mr. P. McSweeney, General Manager; Mr. F. Crumlish, Assistant General Manager—Finance; Mr. C. Gowran, Assistant General Manager—Development; Mr. L. O’Brien, Assistant General Manager—Sales and Mr. J. B. Hynes, former Managing Director, of Nitrigin Éireann, called and examined.

1. Chairman.—Will you comment on the fact that NET have approximately 50 per cent of the nitrogen market and have a very low and in fact diminishing share of the phosphate and potash markets? Is this something that will continue or do you have any plans in relation to other fertilisers?

Professor O’Donnell.—As far as straight nitrogen goes, we have a very high share of the CAN market and a growing share of the urea market, which will grow more rapidly now that our urea production unit is in operation in Cork. As far as NPKs go, you have to distinguish between the different sectors in terms of nitrogen content to some extent. In the high “N” sector we would have had in recent times, a fairly high share of the 10 per cent nitrogen and 18 per cent nitrogen market. Our shares have not been high but I would not agree totally that they are falling. Perhaps Mr. O’Brien might like to elaborate on that point.

Mr. O’Brien.—Normally, we have about 15 per cent of what we call the NPK market. This was reduced last year due to some labour problems at Arklow. Normally speaking, our tonnage has increased slightly over the last few years, leaving out the labour problems. Because the NPK market itself is rising, we are even going forward a little; we are holding only between 12 and 15 per cent of that market. This is a sector of the fertiliser industry in which we have never had a big market share. At present there are probably nine or ten other manufacturers, many of them in the bulk blending business who have in recent years taken an increasing share of this market.

2. Chairman.—Is this something you have made up your mind to live with, or have you any reasonable prospects of getting a significantly higher share of that market?

Professor O’Donnell.—We have to look critically at our NPK manufacturing operations in Arklow this year because, as Mr. O’Brien said, an increasing share of the CCF market is being taken by the blended product now being made by a number of our competitors and which in terms of manufacturing costs is a cheaper operation. It produces a product that is not as good in the sense that it comprises a mixture of granules of different composition rather than each granule having uniform composition which we have in our product. We are looking very critically at our whole CCF manufacturing operation and we have a blending activity which will grow. Mr. O’Brien might like to comment on the distribution of the blending and the conventional granulation.

Mr. O’Brien.—This is a very difficult market for us, one which we must look at not so much to see if we can live with it, to realise that if we keep with it we might die with it. Perhaps Mr. Conlon would expand on that.

Mr. Conlon.—We use this for strategic purposes in our marketing particularly as we are the only manufacturers of Straight N in Ireland. We have a very large share of that market. It helps us and gives us some flexibility in our dealings with the wholesalers and with our distribution outlets. This question of CCF production is very complicated and will require an in-depth study to establish its full worth to the company. It is complicated because we have to rely on outsiders for feedstock. Compound fertilisers are manufactured from phosphoric acid and ammonia with potash added. The phosphoric acid is manufactured from sulphuric acid which in turn is made from pyrites which comes from the Avoca Mines. One of the strategies we have to look at before we invest substantial sums of money is that we must be certain we can secure the source of our first raw material.

3. Chairman.—In the five-year projections you gave us last Monday, is it correct to say that the sales would be based mainly on a significant extension of your nitrogen sales?

Mr. Conlon.—That is correct. If you look at the back of the list, there are statistics which show that the CCFs go down from 131,000 this year; they fluctuate somewhat, then they go up to 114,000. But we do not want to pre-empt any overall company investigations.

4. Senator Cooney.—Have they been proportionately more loss-making than any other operations?

Mr. Conlon.—Yes, they have.

5. Senator Cooney.—I take it you have been carrying out studies to see if they can be turned into a viable part of your operations?

Mr. Conlon.—This is true. We manufacture CCF compounds by the chemical process. The granule has all three nutrients in it. As we said earlier, our competitors in the market place produce blended materials. The share of the market available to manufacturers such as ourselves and Albatros has dropped since 1970-71 from over 70 per cent to 26.3 per cent. Because a cheap source of raw material has been available to the blenders, we have been uncompetitive in the market place.

6. Senator Cooney.—How long have you been aware that this is the most unprofitable part of your operations?

Mr. O’Brien.—Our chairman mentioned in his annual statement some three or four years ago that the only company in Ireland producing phosphoric acid is NET. There was a big factory in Dublin, owned by Gouldings, but that has gone. We wonder if we should hold on to the last remnants of the manufacture of phosphates in this country, or whether we should fall into line with those who are finding a cheaper raw material—cheaper from time to time, anyway—from foreign markets which enables them to bring it in, mix it with other products and make competition for us very difficult.

7. Senator Cooney.—But the point is that you have known for three or four years that this was the least profitable or, more accurately, the most unprofitable part of your operations. What I am interested to know is what steps were taken three or four years ago, when this became apparent, to cure that position.

Mr. O’Brien.—We were always aware of this but the decision to change away from it first of all would have meant great difficulties with Avoca Mines because we were the buyers of pyrites and were helping to keep them going. Secondly, it involved a big number of men in Arklow and, thirdly, more importantly, the price of this raw material being brought in by the opposition can vary so much that from one year to another we can do better if their price goes up. Theirs is a fluctuating price depending on world availability and at this particular time that product is a lot more expensive than it was six or eight months ago. Our operation in Arklow at the moment is better than it was last year but what we have to decide is whether it is worthwhile trying to produce more of it and be competitive and profitable or whether it is time to close it down because of the difficulties involved in trying to compete with this importation of diammonium phosphate—DAP—which is the product brought in by our competitors.

8. Senator Cooney.—Has that study for the future been done?

Mr. Conlon.—There have been a number of studies done. As you know, I have just recently taken up the position of managing director of the company and I have put in train a greater in-depth study. This is complicated because it involves the manufacture of sulphuric acid. We are the sole producers of sulphuric acid in this State and if we did not have the CCF we would have to look at it to see if it would be a viable operation for us to continue producing sulphuric acid for sale to other users in the country. We use sulphuric acid to make phosphoric acid and one of our downstream activities is our daughter company. Arklow Gypsum, which takes the waste by-product and that plant was in the course of being built and commissioned.

Professor O’Donnell.—There are a number of conflicting aspects in this. The answer to your question is that we have not come to a conclusion on this problem. Part of the difficulty is that it is not a simple economic one. Even if we decided that the CCF manufacture by our method was uneconomic and was going to continue so, we have the social problems of employment because there is a substantial number of people in the CCF manufacturing activity in Arklow. We have the pyrite situation at Avoca Mines. We have the downstream activity with Arklow Gypsum that Mr. Conlon mentioned. There is the other factor of the import of diammonium phosphate and monammonium phosphate in recent years. It is an intermediate product of manufacture. It is a raw material used by blenders and it is the large imports of these kinds of materials in recent years that has created the competitive difficulty for us. That import has not been uniform. Prices tend to fluctuate and there has been no guarantee that the import of this material will continue to be on a uniform basis and at steady prices. We have not up to now felt that we should get out of the CCF, if that is what you mean.

9. Senator Cooney.—I can see that many sensitive and social factors were inhibiting your change of operations in this area. Are those factors still present?

Professor O’Donnell.—They are, yes.

10. Senator Cooney.—I wonder why the study was not done three or four years ago when the loss-making potential of this became obvious?

Mr. Hynes.—In addition, the EEC Commission have been examining the fact that diammonium phosphate is being dumped in the EEC by the American producers. They have been endeavouring to work out a formula to do something about the level of dumping that is taking place. It has not worked out although they have spent the past four years at it. You should also know that NET were never big in the compound fertiliser business. Compound fertilisers were produced by private enterprise and NET came into the field. Our participation in the market was always small—15 per cent. Private enterprise was there before us and we came into CCF making the higher nitrogen compound that they could not make. Their limit at the time was 8.6.16—we are speaking in NPK now—and we came in with a nitrogen product of 15.5.10 and it subsequently became 18.6.12 but they could not make that because they did not have nitric acid in their operations. Strictly speaking, NET was nitrogen and private enterprise was compound fertiliser. Compound fertiliser died because of the importation of diammonium phosphate by blenders which shut down Gouldings.

11. Senator Cooney.—Should you ever have got into the compound end?

Mr. Hynes.—In the first instance, we had established the use of pyrites from Avoca and we were making sulphuric acid from pyrites and from sulphuric acid with our ammonia we were making sulphate of ammonia. Because of a changed market situation sulphate became less attractive and it was decided then rather than stop buying pyrites from the mine which would have shut it, to go forward into making phosphoric acid using imported phosphate rock and sulphuric acid, and make compound fertiliser. That is how we came into it.

12. Senator Cooney.—Were you aware of its gloomy financial prospects?

Mr. Hynes.—At that stage it was not gloomy. The Moroccans increased the price of phosphate rock following OPEC’s move in oil prices and two years later they increased the price of phosphate rock from $14 FOB to $70. In a matter of 18 months they virtually shut down the world business in phosphate rock. The whole world consumption of phosphate fertiliser fell and it fell in this country very seriously. It was one of the factors leading to Gouldings being shut. The other thing was the continued importation of DAP. At this moment Gouldings import DAP to make compound fertiliser because their prime manufacture had to stop. We are the only prime producer of sulphuric acid, of phosphoric acid and of nitric acid in this country.

13. Chairman.—May we take it that you are happy with the share of the market you have in compounds, that you have no desire to move away from that?

Mr. Hynes.—The only desire we would have to move away from it would be to increase the output so that the economics would improve. We were always interested in ensuring that we had at least 90 per cent—we had 95 per cent—of the nitrogen market. At the moment it is about 90 per cent.

14. Chairman.—As far as the compounds are concerned, is your small share of the market and the small part that it plays in your overall production something that you are happy with or is it something that you cannot do anything about at the moment?

Mr. Conlon.—This is something we are looking at at the moment. It is all part of the one exercise. At the moment having this small share of the market does give us a little bit of elbow room in our dealings with our other wholesalers with regard to straight nitrogen.

15. Senator Cooney.—You are making this study in depth?

Mr. Conlon.—Yes.

16. Senator Cooney.—What is the future of this element of your business? How long do you expect that study to take?

Mr. Conlon.—I would envisage, with the other things that are going on at the same time, quite a number of months.

17. Chairman.—The mix that is set out there, according to this table you gave for the next five years, shows as really the only significant change that urea goes up about four-fold and everything else has no appreciable change. Are all your projections based on that position?

Mr. Conlon.—Yes.

18. Chairman.—And it is, by and large, a mix that you are reasonably happy with?

Mr. Conlon.—Yes. We have had a survey carried out by Irish Marketing Surveys some time ago and we have continuing dialogue with the Agricultural Institute and with their agronomists. We have a few agronomists ourselves who are continually discussing with and visiting the agricultural advisers throughout the country. We have put a lot of effort into this. We are satisfied that the targets set for our outputs can be achieved. As regards the targets set in 1973-74 for the straight nitrogen market determined up into the mid-eighties, I am happy to tell you that we are on line ball with these at this time, with the season just ending. We were slightly ahead but with the current recession and lack of confidence in the farming community it has dropped back somewhat. Given the fact that farmers can no longer, in our view, look forward to large price increases from Brussels under the CAP, we feel that if farmers are to recover their cost increases they must increase their productivity. The only way and the cheapest way they can do this is to apply straight nitrogen, which is a grassland fertiliser, and there is plenty of room for increased application. There are roughly 12 million acres of grassland in this country, about three million under hay and there are eight or nine million for pasture. If you apply two cwts. to the acre, which is a minimum application, you would get an output of 800,000 tonnes of CAN-equivalent product. That is the minimum. There are many farmers applying applications much in excess of that, of 12 or 14 cwts. to the acre—intensive dairy farmers, for instance.

19. Senator Hillery.—Urea is a relatively new product on the Irish market and the growth in market in Ireland will depend on customer education and acceptance. Could I ask what steps are NET taking to achieve this customer acceptance?

Mr. O’Brien.—Urea is not so new. Going back to 1968-69, we have sold 8,000, 18,000, 27,000, 55,000 and 66,000 tonnes, so it has always been in the Irish market. It has not been anywhere near as popular as CAN with the Irish farmer. Up to about two or three years ago it was felt that it was not just as good a product pro rata with its N content. With the Agricultural Institute three or four years of research was undertaken at about 200 pilot farms throughout Ireland and these results were finally published about one year ago by the Institute. They indicated that for certain crops, and especially during the early spring months, urea was as good a fertiliser as CAN. We have begun to promulgate this sort of information and, as Mr. Conlon said, with our small team of agronomists, we have decided that the best way to do that is through the existing national organisations, that is, the Agricultural Institute, the county agriculture officers and their 500 agricultural advisers. We are constantly in touch with them in getting this sort of information through to the farmer. We have no doubt at all that urea will increase steadily and by, say, 1986 at the latest, all the urea can be sold in Ireland. All our urea manufactured in Cork will be sold in this country. If we get normal nitrogen growth between now and then, all our CAN and all our urea, if it is still competitive and acceptable to the farmer, will be required to meet the N market at that time and perhaps a bit more, too.

20. Chairman.—Will the output of urea gradually overtake and outstrip the CAN? According to this table here, it is gradually overtaking.

Mr. O’Brien.—Yes. It is gradually catching up with it. CAN accounts for 370,000 tonnes and urea will go up to 300,000 tonnes. CAN will be static, because it is the maximum we produce anyway. What we are looking to now is that the increase in the N requirements to the Irish farmers will come from urea rather than from CAN, which would have to be imported.

21. Chairman.—It is a matter of capacity rather than demand, then?

Mr. O’Brien.—It is a matter of capacity and to market well the two products, which are both very acceptable to the farmer. This must be arranged in such a way that the farmer has whichever products he likes but, in total, has sufficient N to meet his total requirements.

22. Chairman.—From the point of view of profitability, which is the more advantageous to the company?

Professor O’Donnell.—Urea is the more advantageous from the point of view of company profitability, although there is a peculiar anomaly in a sense that the price per unit of nitrogen to the farmer is lower in urea than in CAN. Nevertheless, urea is more profitable.

Mr. Crumlish.—The objective of the projections is to put it on to the Irish market and to meet the demands in the growing nitrogen requirement by the addition of urea where there is a shortfall and the projections are based on the fact that we supply our total CAN requirements to the market and that any growth in the market will be supplemented out of urea. We established a pricing relationship, taking into account the nutrient values of the two and the expected market reactions and it is anticipated that we will narrow the gap as time goes along to a point where we would not see any difference in relation to a return to the company as regards one versus the other. There are no market fears initially.

23. Chairman.—What is the pricing policy? You have shown, a loss for some years past. Obviously, if you could charge more for your product you would not be showing a loss. There must be some reason why you do not charge more for your products. What is the position about that?

Mr. Conlon.—Our primary objective, which was established when the company was formed in the early sixties, was that we are to supply nitrogenous fertilisers to the Irish farmers at prices in line with world prices, without protection or subsidy. In recent years, since the energy crisis of 1973-74, the company has not been profitable, because we have been unable to recover, in full, in the marketplace, our cost increases which cover material, payroll and other overhead expenses. Following the energy crisis the company concluded that they would not regain profitability until the Marino Point complex became fully operational. Until the Marino Point ammonia plant came on stream we had to rely on imported ammonia to supplement the Arklow production which was manufactured from a high cost feedstock and energy cost and this gave rise to large losses in the company. These losses were aggravated by the delay in bringing on stream the Marino Point production units.

24. Chairman.—Was the failure to put up prices because the company felt that they had to supply goods at a cost that was the same as world prices, or was there Government pressure on the company not to put them up? What was the determining factor in not putting up the price of products?

Mr. O’Brien.—There were two factors. One had to have regard to the going price for our calcium ammonium nitrate. If we put the price up too high then the import of this product would increase drastically and we would finish up worse off than when we started. Secondly, bearing in mind our aims when we set up the actual company, we had to bear in mind that the farmer should not have to pay more for his nitrogen than his EEC competitors. These two aspects indicated the sort of prices we should charge.

25. Senator Cooney.—Had the EEC competitors not also to deal with the 1973-74 oil increase or had they cheap feedstock all the time?

Mr. Hynes.—Natural gas. ICI had the cheapest natural gas in the world and still have.

26. Senator Cooney.—So when NET started originally you were competing with people who had a basic advantage in that they had a cheaper feedstock?

Mr. Hynes.—No, that was pre-natural gas. It was even pre-naphtha.

Professor O’Donnell.—We were on level pegging with other people.

Mr. Conlon.—In relation to the extra level of imports and our dependence on heavy fuel oil; for example, in 1976 we put up our price—all we did was to reflect our increased costs somewhat—and as a consequence imports increased substantially. In 1976-77 imports increased to 73,083 tons from 49,621 tons in the previous year.

27. Chairman.—Was it because of the prices?

Mr. Conlon.—This was because we were less competitive. Customers will import because of price levels.

28. Senator Cooney.—The price of the company’s products will always be controlled by overseas competitors?

Mr. O’Brien.—With no duties under EEC regulations, CAN is free to be brought in and it is very allergic to price increases here. If prices go too high here we will soon have CAN coming in and making our own market very, very difficult. We felt that with the normal price we would expand our tonnages produced and therefore sold. This we have shown we can do because since we started in 1965 we have increased by about 1,000 per cent the sale of CAN here. This at a time when phosphates and potash were having a very rough time even though certainly over the past ten years the Government have had to pay about £50 million out in subsidies for phosphate use and somewhat less for potash use. So at a time when nitrogen was expanding rapidly, even though profit wise we were not doing well, we were expanding the use of nitrogen by the Irish farmer, giving it to him at a competitive price and maybe getting a little bit hurt ourselves in so doing.

29. Senator Cooney.—If the cost of the imported product is going to be a constant constraint on pricing, I gather from the submissions we have that the company’s answer to that was to produce on the same basis as overseas competitors by using the cheap feedstock. Unfortunately, that does not seem to be working out because on the projections given to us for a number of years ahead the company are going to show substantial losses which they cannot recover by increasing prices.

Mr. Conlon.—That is quite true, but one of the main reasons for the substantial losses that we will incur, in accordance with these projections here, is the serious imbalance in the capital structure of the company which came about by the continuing loss-making situation plus the over-run on our capital development programmes in terms of cost.

30. Chairman.—Even on the assumption of an injection of £50 million the company would still be showing a loss for each of the next four years.

Mr. Conlon.—Yes, but we are getting it down. This is the exercise that I personally now have to tackle. Looking at our compound fertiliser operation and such other loss-making activities. I also have to look at the overall organisation required to put us back into a viable situation.

31. Chairman.—In the middle seventies the company were losing money but were convinced that when Marino Point came into operation that would solve the problems and the company would then make a profit. Now Marino Point is in operation and the company have a major capital structure problem. Even assuming that that capital structure was solved by the injection of £50 million and even though Marino Point is now operating, the company are still projecting very substantial losses for the next four years.

Mr. Conlon.—The capital injection was just a figure that we jumped at, bearing in mind the immediate future and the amount of the money that could be available. Indeed, I will make a case to the Government that the capital injection will have to be substantial and the gearing commercially acceptable for a company such as ours. Equally, we have to take a critical look at our organisation to see where it can be trimmed down as it must be trimmed down.

32. Senator Cooney.—What steps were taken to deal with the loss-making situation that has been accruing for the last six years? Even assuming for the moment that Marino Point had not over-run in time and money and the company had not that extra burden, the company would still be bringing forward an immense financial burden by virtue of the accumulated losses in the last six years. It is puzzling as to how these losses were allowed to continue. Are there external factors or constraints that just could not be dealt with? Could we have a general view on that scene?

Professor O’Donnell.—The projections which we made on the basis of the original Marino Point project would have shown quite good returns in the middle eighties, the ones we had in the original report to the Board and so on.

33. Chairman.—What date would that be?

Professor O’Donnell.—Mid-1984. What really disrupted those projections was the over-run in cost and time on Marino Point and the tremendous increase in borrowings with which we got involved and the very large increase in finance charges.

Mr. Crumlish.—We were aware of the accumulated losses which the company was incurring in the course of 1976 through to 1978. The various other people have explained the reasons behind them which were increases in our basic raw materials—fuel oil actually trebled in price in the two-year period and rock phosphate went up by 600 per cent. Being aware of these facts we also at that time were building the Marino Point project. It was extremely important from the company’s point of view at least to maintain the market share which we had established in relation to nitrogen because one-third of the total output of the Marino Point project by way of ammonia would be channelled into the Arklow plant for conversion to CAN. While we were incurring losses, the expectation was of the plant coming on line much earlier and at a lower cost. We made a judgment based on that, that it was necessary to incur certain losses to maintain the market share because if we were to cut back on the market we would start off at a much lower level in trying to increase. Also, during the period at the end of the projections which you are referring to now indicating a fairly difficult period ahead for the company, we have projected based on present day situations, where we are talking in terms of very little alleviation in interest rates and also no changes in the terms of operation of the company as of now. As the Managing Director has indicated to you, these things individually and totally are being reviewed and studied which should definitely bring an improvement in the case. We have to look at it that there is first of all, the question of the imbalance in the equity and, secondly, there is the question of the cost of any borrowings which we have at this time which makes it extremely difficult to service any type of investment especially——

34. Chairman.—Could you recap on the three things you say would improve the situation?

Mr. Crumlish.—A further injection of equity into the company, an alleviation in relation to interest charges as of now which are at a currently high and probably all-time record, for a length of time and, thirdly, a review of the company’s overall performance in relation to the various units to see if there are areas where economies or changes in activity can actually take place.

35. Senator Cooney.—It seems to me then that your strategy, when you were hit by the increased prices in the 1973-74 time, was to look forward to a successful Marino Point operation as providing the future for the company and it would be so successful that it would be able to absorb the losses that would necessarily be incurred in keeping going until you were able to avail of Marino Point. When Marino Point started to go wrong and it became clear that your strategy was not going to be achieved and when it became then extremely important to look at the existing loss-making areas with a view to trimming them back, I would be anxious to know what steps were taken to adjust to those contingencies which manifested themselves reasonably early?

Mr. Crumlish.—The problems relating to Marino Point only took on a major appearance late in the life of the project. It should be borne in mind that when looking at the company’s performance over the years we were reasonably profitable up to 1973. Between 1973 and 1977, which were the critical years of the Marino Point project, the accumulated total losses for that period were of the order of £8 million but in terms of the benefit to the company in protection of its market share and the protection of its nitrogen base, the judgment was made that it was practical or that it was feasible to carry that level of loss.

36. Senator Cooney.—Were you not losing money before that?

Mr. Crumlish.—1973-74 was our first major loss-making year.

37. Senator Cooney.—Yes, but were you not in a loss-making situation in some of the years preceding that? A loss in 1970, a small profit in 1971, a loss in 1972, a small profit in 1973 and then a loss in 1974. Is that not right?

Mr. Crumlish.—That is correct, yes.

Mr. Hynes.—We were expanding Arklow and building new plants totally with borrowed moneys. The interest rates were not heavy, the interest charges are now the worst factor.

Mr. Crumlish.—The worst factor was difficulty about our expected production.

Mr. Hynes.—There is one factor that was not mentioned just now. We have conceded that the parameters for Marino Point weakened, if you like, against us, but what we have not said is that one of the factors which we expect to restore the profitability would be an increase in world prices in nitrogen. World prices in nitrogen are definitely going up because the nitrogen is totally energy-related. Whereas at the moment a number of companies have cheap nitrogen, contracts are running out and the world price of feedstocks is now beginning to increase and therefore the price of ammonia and nitrogen will increase. The projections which my colleagues have submitted do not anticipate price increases in the future: they are all on current prices. There is no doubt that nitrogen prices will increase.

38. Senator Cooney.—In spite of the fact that there is an increase in capacity all over the world?

Mr. Hynes.—The increase in capacity is capacity to make ammonia in Russia.

39. Senator Cooney.—And in the Gulf States?

Mr. Hynes.—The Gulf States are making ammonia to compete with new plants. They are not at the moment building any new ones that I know of, but they are highly inefficient. They are running at a very low rate of utilisation. As far as export markets go the main targets for our urea exports are India and China and even though both of these countries are building substantial capacity in nitrogen fertilisers the most reliable information we have is the fact that they will not reach anything like self-sufficiency particularly in urea, which is of main interest in those countries, for quite a while and it is fair to say that there is no great fear of that market dying out on us. Our targets for exports of ammonia tend to be in Europe and to a smaller extent the USA. I do not know if we are actually exporting to there at the moment, but to Europe mainly. Again, the reliable information there is that prices in Europe will go up, so that there would seem to be an improving opportunity for exports to the European market according to our best information.

40. Senator Cooney.—If I may revert to the loss-making situation that was tolerated pending the coming on stream of Marino, I would be anxious to know what structures were available within the company or what steps were taken within the company to minimise those losses over the years in question?

Mr. Hynes.—In the earlier years we minimised those losses by increasing production and, as I mentioned to you, we built additional nitric acid capacity which made it possible for us to produce more CAN. In the first plant we built our capacity of CAN was 65,000 tons. By building additional nitric acid and extending our capacity of CAN, we increased the output of the company. As we increased the output every ton meant reducing the overheads per ton. That was our planning at that time. We ran out of rope in that we had a difficult year with that prill plant which has been referred to in your questions. That prill plant should have been in operation about a year earlier. It should have produced bigger tonnages than it did. One of the things that defeated us in reducing our losses was that our tonnage did not rise as we had planned.

41. Senator Cooney.—Was that the reason for the losses over the years?

Mr. Hynes.—That helped to make losses. The national wage agreement and the non-increase in world prices and particularly ICI prices, which were at that time held down totally by the British Government’s price freeze. We wanted to increase prices but we would not be allowed. ICI wished to increase prices at a particular time but by reason of the fact that they had a very cheap contract for natural gas, the Prices Commission in England forbade them to increase their prices.They succeeded at the time in shutting down Thames Nitrogen in England by reason of their low prices.

42. Chairman.—Is it correct to say that our Government never interfered with prices, that you merely reacted to the competitive position as regards prices?

Mr. Hynes.—No, that is not true. We had severe price control. In 1973/74, when world prices for energy shot up, prices here were restrained resulting in losses being made.

43. Chairman.—Could we have some details of that? In what years was there a Government restriction of prices?

Mr. Hynes.—The Prices Commission here controlled fertiliser prices very severely until about three years ago, when the industry was freed from severe price control and was allowed to recover its losses of actual costs on a reporting basis. We had to report it.

Mr. Conlon.—I want to answer Senator Cooney’s question. He asked a question about why there was a loss in 1970. It was on this very subject. We had increased costs which were not compensated because of the delay in getting approval to increase our price. That depleted our cash flow for that year by £625,000.

44. Chairman.—Was that in 1970?

Mr. Conlon.—We have been making the case that the company was making small profits up to 1974. We were getting a break-even situation in 1972. In 1970 we showed a loss of £82,000.

45. Chairman.—I got the impression up to now that with your price policy the Government never had to step in. You were so conscious of your competitive position that you never charged more than the world prices, so that you could compete with importers and the Government never had to intervene. Is that not correct?

Mr. Conlon.—Generally speaking, that was the situation. That is the situation at the present time. In the early days the scene fluctuated year by year. In any year where there were substantial increases, particularly those arising from the devaluation of the pound sterling of 1968, there were price increases. The costs of other manufacturers in the UK were also affected and we could have put up our prices in the marketplace without damaging our market share. We applied for price increases. There was a delay in their award, and that cost the company £625,000 in 1970.

46. Chairman.—Since then have there been any others? I think Mr. Hynes mentioned another year where there was a restriction from Government intervention?

Mr. Hynes.—In 1974. Shortly after the energy cost increases the world price for nitrogen and compound fertilisers soared. We did not export. We could have made a lot of money by exporting at that time and leaving Irish farmers short of nitrogen. That was not the policy of the company. We supplied the Irish market at a controlled price. It did not apply in the summer of that year and the spring of that year because of the cost increases which had been incurred. The figures are on record. A year or two later, following representations by the company, it was decided by the Prices Commission to lift the rigid price control which had been imposed.

47. Chairman.—Is it correct to say that from then on there was no price control? That was 1976 or 1977?

Mr. Hynes.—About 1977. Market prices have been controlling us since then.

48. Deputy B. Desmond.—Is it still not a fact that on the basis of existing costs within the company and on the basis of existing price structures, as of now, that the projections to 1985 could in fact have the gravest consequences unless there are one of two things—major reductions in costs or major price increases? I wonder to what extent your projections to 1985 take into account future world trends in price structures as known to you at this stage. Mr. Hynes indicated he expects increases. I appreciate the hypothetical nature of anticipating future increases but they centre around the whole issue of the future cost structure of the company in many ways. Are we going to see very massive increases in price structuring in the Irish domestic market? I am still not quite clear in my mind as to what the future anticipations by you are.

Mr. Crumlish.—To put the projections in context, we have assumed that increased costs related to our production would be recovered in selling prices. We have not assumed that we would not get anything further while at this point in time prices lag considerably behind the costs. Over recent years we processed our home prices with the Prices Commission by way of advice, as we are de-controlled. Our market price never reflects what, in effect, the real selling price of the products should be to meet the second objective of the company policy, which is to remunerate the investment. We are restricted by the fact that we must keep in line with the EEC prices. Our reasoning for that is the competitive nature of the industry. While prices should be considerably higher to remunerate the investment and while we would be in a position to increase them with the approval of the National Prices Commission, we have never been in a position to put them to a realistic level. We have not attempted to do that in the projections but what we have always attempted to do was to say that increased costs from now on will be recovered and will be able to be passed on. The past price potential has gone.

49. Chairman.—Is this because the Government will not allow you?

Mr. Crumlish.—It is purely a judgment that we have taken in relation to the market situation—not in relation to any restrictive policies of the NPC or of the Government.

50. Chairman.—Is not part of the problem that this situation is likely to continue for four, five or ten years, that you will never be able to charge a price that will remunerate capital and show a profit? Is there any reason to believe, looking back over your experience of the last ten years—there have been various reasons put forward why you lost money—that the same circumstances or similar circumstances are going to continue to crop up, perhaps different ones in each year but that you are likely to continue to have the same kind of problems and you are going to end up two years out of three not being able to show a profit?

Professor O’Donnell.—I will come back again to Marino Point which is a big part of our problem in as much as it has imposed on us these tremendous finance charges and our projections clearly and obviously show the diminishing effect of that as time goes on. Our belief is that with the substantial production capacity which we have in Marino Point, assuming as we are, that we will not be faced with another capacity increase which could run us into more problems, we do not anticipate the kind of fluctuations and irregular pattern of cash flows as has been the case in the past.

51. Senator Cooney.—How much money would you need in global terms to put your financial position on a proper basis? I gather from what you say that even if you got this huge injection of capital and if all the financial constraints that are there because of your undercapitalised position were removed, there is no guarantee that you would be commercially viable thereafter.

Mr. Conlon.—I would disagree with that statement. I have a graph here showing the trend of international prices in the past year. This is going up and I have no reason to believe that that trend will not continue; also in view of international price trends for finished products—phosphoric acids, diammonium phosphate and one of the raw materials we are talking about, urea. Urea went up from under $150 to over $200 a metric tonne. If we were to be given what I would term—and we would have to debate this one with Department concerned—a commercially acceptable gearing for a company of our size——

52. Senator Cooney.—How much would that cost?

Mr. Conlon.—I would say just under £90 million. That is calculated on the basis of a 1 for 1 ratio. In a capital intensive industry such as ours with low profit margins, we should look for a gearing much in excess of that. Taking into account the inherent security attaching to a semi-State body, the amount would be £90 million. I arrived at it this way: our borrowings at the moment are of the order of £160 million; add the equity of £27 million and divide by two. This gives us £187 million. It was on that basis that I arrived at the figure of roughly £90 million.

53. Chairman.—Prices are going up but the cost of production is going to go up too. I think you can take it for granted that the margins may improve but inevitably just as you say prices are going up the cost of production is going up too. Is there any guarantee that it is going to show better margins or even a margin which in many cases it has not shown in the past?

Mr. Conlon.—It is essential to the proper development of our company that if we are going to pick up the development trail once again to take a hard look at the organisation, and, quite frankly, to trim it down. A reduction of 100 people would mean a saving of £1 million. There is a substantial reduction to be made in the cost of operation and of running the company.

Mr. Hynes.—To answer your question, generally there is not one urea plant that has been built anywhere in recent years that could pay if world prices do not go up. That is a statement of fact.

54. Senator Cooney.—When did you know that?

Mr. Hynes.—We did suggest the possibility of consulting with the World Bank but we can produce figures of all the ammonia plants built under World Bank auspices in recent years to show what the capital cost was like and what the operating costs were like and what their prospects are like. These are major plants that were built in Europe in the last few years and which will never make money unless the price of ammonia increases very substantially— much higher than ever will be required at Marino Point, for instance.

55. Deputy L. Lawlor.—On the question of the gearing from now on, the financial situation has been known for quite some time but where is the package of proposals now to deal with the situation, or are you now going to come forward with a package to try to rectify some of the losses and look for additional funds at the same time? One cannot help but feel that it has taken a long time to get to the stage from the Board’s point of view to recognise and decide to put forward some recommendations as to how they can operate more efficiently and how they can get their costs down and their price levels up. We seem to be drifting aimlessly into a £90 million additional capital situation and one must question why, and what better ways and what more job creation could be got with this amount? Also what sort of national benefits would be involved? Going back to the point about increased costs, there was an awareness of those costs quite some time ago and yet there was a lack of action.

Mr. Conlon.—A presentation was made to the Department of Industry, Commerce and Energy, as it was then called, in November 1979, with proposals for capital restructuring of the company.

56. Chairman.—At that time was Marino Point in operation?

Mr. Conlon.—Yes.

57. Chairman.—Were you going to tell us something about that presentation?

Mr. Conlon.—No. Since I came into the company I have been involved in other urgent business—critical cash situations which had to be given immediate attention, or for annual general meetings and so on, putting in train some of these studies. I am under an obligation to put in a revised submission to the Department of Industry, Commerce and Tourism in the very near future. We would expect to have a revised one, bringing it up to date in the light of our experiences, in the light of taking a more conservative attitude towards the projections as to our future capabilities.

58. Chairman.—That would have to be something major to overcome the deficit that you have projected, even in the most favourable circumstances. That is the case, too, with an injection of £50 million. Even on that basis, the loss that you have shown is hardly one that can be dealt with by economies and cheese-paring. The magnitude of it is such that we would like to hear what you have in mind that would enable you to deal with that deficit in each year.

Mr. Conlon.—There is little I can do to change the position for 1980 at this juncture and indeed for some months in 1981. This company will not be turned round overnight. I cannot pre-empt studies which I have not yet finished, but from a preliminary look at the figures, I feel that the investigation I have in train into the CCFs can make a sizeable contribution, to my thinking, on the outcome we can achieve there. I believe that productivity in the company has been falling constantly in recent years. We have got to reverse that trend and bring it back up. The productivity at the moment in value terms per employee would be somewhere of the order of £28,000 per employee and that compares with the productivity of U.K. fertiliser manufacturers—I have taken these figures from their census of production returns—of about £42,000, in round thousands. You can see that there is a big scope for us to make substantial savings and we have got to fact up to that and try and get them. It is going to be difficult; it is not going to be easy.

59. Deputy L. Lawlor.—So the competitive production units are capable of producing £42,000 per employee as against your £28,000?

Mr. Conlon.—That is right.

60. Senator Cooney.—The submission that was made in November 1979 had to be revised?

Mr. Conlon.—It has to be revised and I have asked the Department to let me have a look at it, now that I have joined the company, in the light of the changing circumstances that have taken place, in the light of information that is now available to us, so that we can re-submit it. I have taken professional advice on the appropriate capital structure for the company.

61. Senator Cooney.—Could you indicate which circumstances have changed that leads to the latest revision? How much in line was it with the projections that you have given to us now, or was it totally out of line with them?

Mr. Conlon.—It was totally out of line.

62. Senator Cooney.—Could you give the projected outcome for 1981?

Mr. Conlon.—The projections made in November for 1981 show a loss of £8.5 million. For 1980 the projections show a loss of £13,234,000.

Senator Cooney.—As we know, the other figures seemed unduly optimistic.

63. Chairman.—Was this assuming a capital injection?

Mr. Conlon.—No.

64. Senator Cooney.—Surely it did. It was in the submission showing what the outcome would be after you got the investment that you were seeking, was it not?

Mr. Crumlish.—It was an assessment of the situation, to indicate the situation as it obtained in the company which necessitated an injection of that sort. We did not pre-empt any decision in relation to the amount of capital which would be injected into the company. To go further on Deputy Lawlor’s point in relation to a less substantial injection of equity, we feel confident, and the Managing Director will agree with me, that a substantial injection of equity would be very difficult if not impossible to remunerate in the early years because the major burden that the company is stuck with at the moment is servicing its investment. In the long term it would be to the advantage of the company and it would be well remunerated as an investment because we are now paying interest charges at a high rate on a total investment. In effect, everything is practically financed from borrowing at a time when we had not reached full production on our major units. We have to take into account that the capital invested in the Marino Point project is about three quarters of the total capital invested in the company. That unit of the company is still a growing situation and it will not reach full production until sometime late in 1981. That, of course, still does not alleviate our problems in relation to servicing the investment. By doing so we are creating further problems for ourselves further down the road by having, in effect, to borrow the difference between what we are generating and what is required to service the investment.

65. Senator Cooney.—Is there or has there been some serious lack of dimension of planning expertise within the company in view of the fact that there is such a disparity between the two submissions over such a short time? Has there been a lack in some fundamental organisational structure?

Professor O’Donnell.—I would not think there has been.

66. Deputy L. Lawlor.—Could I couple that with the projected costs of the Marino Point plant, because they are both wound in. Everybody has been hit with increasing costs in running their businesses, but you were far off target on the capital side, and now in this submission again there is a rethink within a short space of time. The projections have been wrong twice within the last short number of years by fantastic amounts, not 2.5 to 3 per cent.

Professor O’Donnell.—Obviously we could spend a good deal of time talking about that——

Deputy L. Lawlor.—I am not arguing. I am just saying that twice in the last number of years major financial errors have been made in projections.

Chairman.—We do not want to get into the question of the escalation of costs today. We will be coming to that on another day.

67. Deputy L. Lawlor.—Is there a change then in the submissions?

Professor O’Donnell.—I would not think it would be fair to attribute that to a glaring defect or lack of financial expertise in the company. Certainly we have had to revise our estimates or forecasts of sales and indeed of operating expenses.

Mr. Crumlish.—To answer the point raised by Senator Cooney and Deputy Lawlor, again in relation to the two sets of projections—and I do not want to go into the detail of the assumptions—in November 1979 we presented projections which were prepared in the course of September and October when we were looking forward. A number of the assumptions have now changed. We became aware of them as a result of experience over the last six months. One example is that, in September and October when we projected costs forward, we talked in terms of interest rates averaging for the year at 15 per cent. It is now possible to say that was extremely optimistic. But we had a mix of dollar borrowings, Irish pounds and sterling and at that time dollars were of the order of 10 to 12 per cent and we felt it was reasonable to assume that we could get an average out for the year of about 15 per cent. As we all now know in relation to sterling, and taking into account fluctuations in the Irish pound versus sterling, which dropped by 5p since 1 January, these fluctuations affect one’s interest costs because these must be met as well. That accounted for one major difference between the two sets of projections.

Another aspect of it was the fact that we had a five to six week outage in Cork due to an industrial relations problem when there was no production from the plant. That cost to the company was very substantial.

The third point is that in relation to the Marino Point plant we have revised our expectation of output downwards. Therefore these factors and taking into account some other changes in relation to expense, have accounted for the changes in projections. They can be classified under whatever heading one wishes. But there are major reasons for the differences in the projections of September/October last and those for May 1980. Interest and production being the two major aspects; production lost and which cannot be recovered this year due to industrial problems at the factory.

68. Deputy L. Lawlor.—Have the banks financing any of your projects issued any stern warnings, made any comments, or is it that they are prepared to advance funds to Nítrigin Éireann Teoranta on the basis that it is a tremendous investment for them. As far as I can see they are the people making all the profit of it. They are getting the interest on the money and because there is this underwriting by Government they are prepared to advance vast sums of money continuously and reap tremendous profits. NET must be contributing a high percentage of some banking groups’ profits based on the figures available. What is their attitude at present?

Professor O’Donnell.—Are you asking whether they have indicated defects in our management and projection systems? Is that what you mean?

69. Deputy L. Lawlor.—The gearing. Are they happy with the gearing because they are the people benefiting greatly?

Professor O’Donnell.—They are not happy with the gearing.

Mr. Conlon.—The banks are extremely unhappy about the situation as it obtains. In fact the company has reached a situation in which it cannot tolerate or bear any more borrowings. We are going around in a vicious circle. We are borrowing money to pay interest on borrowings. There is not a bottomless pit as far as the bankers are concerned. We have had an immediate and urgent cash requirement. Before we could make the arrangements for that cash requirement or borrowings from the banks we had to get a letter of comfort from the Minister for Industry, Commerce and Tourism. That letter was forthcoming only after the matter had been referred to the Attorney General. I believe it even entailed a personal letter from the Minister to the Minister for Finance. The bankers themselves have had several meetings on the subject with the Department of Industry, Commerce and Tourism expressing their concern. Before we could get money we had to obtain this letter of comfort.

70. Deputy B. Desmond.—Mr. Conlon referred earlier to a figure of £8.1 or £13.1 million projected deficit for 1980. Does Mr. Conlon remember this assumption?

Mr. Conlon.—No, that was £31 million for 1981.

Deputy B. Desmond.—Mr. Conlon referred to it in passing and I did not pick it up precisely.

Professor O’Donnell.—£13 million was forecast in the November documents.

Mr. Conlon.—No, that was based on projections without any additional equity in the November submissions.

71. Deputy B. Desmond.—Was that in the November submission? That is what I wanted to know.

Mr. Conlon.—That accounted for a large part of the discrepancy between them.

Professor O’Donnell.—Might I add that a large part of the discrepancy between the two was accounted for by two factors, that the loss in sales——

72. Chairman.—Is this the projection for 1980?

Professor O’Donnell.—Yes, the figure——

73. Deputy B. Desmond.—There was a specific figure of £13 million referred to by Mr. Conlon. At that point I was not able to put my finger on the context. So far as it is possible to elaborate on the background to it perhaps Mr. Conlon could assist me here?

Mr. Conlon.—I know the figure to which the Deputy refers—£13,234,000. I think the question was “did that figure provide for an injection to equity into the company”. The answer to that question is “no”. We are talking about the projection that was submitted to the Department in November 1979 and which had been prepared a few months earlier.

74. Chairman.—In the projections which you gave us a few days ago—Case I and Case II—they show, even in Case II, with an injection of £50 million, a projected loss still in 1984. If that were projected further would it reach a point eventually at which a profit would be made and, if so, approximately what year would that be?

Mr. Conlon.—Yes, if it were extended to 1986, we will have turned the corner.

75. Chairman.—Then, looking at it from another point of view, to achieve a debt/ equity ratio of one to one, which should be generally regarded as a proper one, would I be right in saying that that would require something of the order of £90 million, or what is your estimate of that?

Mr. Conlon.—That is my estimate off the cuff.

76. Chairman.—In the event of that being forthcoming have you made any estimates or any projections of what the profit and loss account should be over five or six years?

Mr. Conlon.—No, I have not made those projections as yet.

77. Deputy B. Desmond.—On the five-year projections as far as sales prices, home and export projected prices are concerned, I see that those used are those currently being realised in the market place. I notice also that your cost projections are also calculated on a non-inflation basis. Just by way of clarification, is there any particular methodology? Are you adhering to current sales prices and to non-inflation cost prices in terms of the projections?

Mr. Conlon.—There is a time factor here. I have been only five or six weeks in this position and I wanted to give the Committee reasonably up-to-date and accurate figures.

78. Deputy B. Desmond.—Would they be subject to revision anyway?

Mr. Conlon.—Yes.

Mr. Crumlish.—We are working on the basis that we will at least match in the foreseeable future increased costs in increased selling prices. Therefore, rather than try to predict different rates of inflation for wages, salaries, maintenance, inputs and the selling price, we assumed a non-inflation case for the five-year period projected.

79. Deputy L. Lawlor.—In regard to the profit and loss projections and this request for capital, obviously the follow-up information will have to be submitted before anybody could give serious consideration to the cash requirement?

Mr. Conlon.—Yes, indeed.

80. Deputy L. Lawlor.—Therefore, at the moment the actual submission cannot really be dealt with other than scrutinised and queried. A lot of financial planning and information must be forthcoming in the immediate future for the Minister responsible.

Mr. Conlon.—That is the situation.

81. Senator Cooney.—In your submissions what plant utilisation factor, as a percentage of the annual capacity of your plant is being provided for?

Mr. Crumlish.—In the projections we are discussing, the utilisation factor in relation to the Arklow plants is that we will operate at our normal capacity, which is 90 per cent of rated capacity in relation to CAN and CCF, with the exception of 1981 when we would have some extra down-time on the CAN plant to do particular modifications to meet environmental requirements. In the case of the Cork plants, we are working on the basis of an 80 per cent utilisation of the ammonia plant in 1980, rising to a 95 per cent in 1981 and to 100 per cent from there on. But when I talk in terms of 100 per cent for the ammonia plant, that refers to working for 322 days out of 365 days. Therefore, in effect, 100 per cent represents 90 per cent of calendar days available to us. That applies to the ammonia plant. We have cut back slightly in the case of the urea plant where we are talking in terms of a utilisation of 66 per cent in 1980, rising to 85 per cent in 1981.

82. Deputy B. Desmond.—In the first half of 1980 what is the ammonia plant working at? Is it 80 per cent?

Mr. Crumlish.—For the time on line it has been over 80 per cent but we were out for five weeks due to a demarcation dispute.

83. Deputy B. Desmond.—What about the urea plant?

Mr. Crumlish.—In the urea plant we were achieving 70 per cent. This is in the time available to us assuming that five weeks were not available as a result of that demarcation dispute.

84. Senator Cooney.—That, I think is very good in comparison to comparative utilisation factors in other plants abroad.

Professor O’Donnell.—It is good.

Mr. Gowran.—They vary quite a bit and we could have done somewhat better, but there are many plants that have done a lot worse.

85. Deputy B. Desmond.—Taking into account the five weeks block, what was the out-turn for the first half of 1980?

Mr. Crumlish.—In terms of tons, for the first five months of the year, we made 133,000 tons of ammonia, up to 2 June. That was discounting five weeks when there was no production at all.

86. Deputy B. Desmond.—Have you quantified the loss of that five weeks at all, even in very broad terms?

Mr. Conlon.—In excess of £5 million.

87. Deputy B. Desmond.—You are fairly certain of that figure. Have you any observations to make on that?

Mr. Conlon.—It is essential to the viability of the company that we get stable output from the plant units.

Professor O’Donnell.—This is an essential feature of any big plant. A great plus feature always considered in relation to very large plants is the economies of scale and reduction in cost per ton by reason of large outputs, but concomitant with that is the essential requirement to have the plants running and not to have the kind of situation of a five-week stop, such as we did have. Labour relations are vitally important.

88. Deputy B. Desmond.—Have you any projected investment plans relative to Arklow, sections of the plant being 15 years old?

Mr. Conlon.—We have a number of strategies and a number of alternatives that we can take but here again I have withdrawn them from the Board so that I can do a more in-depth study and more detailed marketing exercises. What is involved here is what we were talking about earlier—our markets for our CCF. The implications of whether we stay in CCF or whether we get out of CCF, the implications of whether we can secure our source of raw material and be satisfied that we have secured it for our sulphuric acid plants; also the implications of what happens if we were to shut down. We have a number of strategies. It also involves putting right our No. 2 CAN plant which we have commitments to put right. We have environmental problems with that plant and at the moment we are finalising our tests on a process to replace that unit. We have estimates given to us. It has to be appreciated, too, that the company has a critical cash situation.

Professor O’Donnell.—We are looking at a number of alternative strategies as Mr. Conlon has said, but clearly any new capital expenditure must generate, at a very minimum, enough funds to cover interest and debt repayments. Secondly, we have to protect our straight nitrogen market share. That is essential to us. We have to take whatever steps are necessary by way of an investment or other exercise in relation to labour productivity to do that. Thirdly, we will have to rationalise CCF manufacture. This is the loss maker and we are looking very critically at whether we should get out of this or, if not, how we improve outputs. Related to all of these is the essential nature of labour productivity. That has to be raised very significantly, particularly in the Arklow situation. There is a large labour content in the products we are producing.

89. Deputy B. Desmond.—How many are employed in Arklow now?

Professor O’Donnell.—About 1,100.

90. Deputy B. Desmond.—And in Cork?

Professor O’Donnell.—Something over 400.

91. Deputy L. Lawlor.—Based on the difficulties you have had with labour relations, and now the urgent need to have continuity in production, plus the fact that you are obviously going to have to streamline the labour force—the two of them not really being compatible—can one foresee more labour difficulties in trying to get the production per employee up? With these high manning levels you have had difficulties. What is the comment on labour relations at the moment? Is there any recognition by the staff concerned that the five weeks’ strike cost £1 million per week or will you have difficulties when you discuss new manning levels to get the production per employee figure up?

Mr. McSweeney.—The £5 million loss was incurred at Marino Point in relation to a dispute between the craft unions which is endemic in the development of these process industries at present. It is a problem about who handles what and it is one that we, and especially Mr. Hynes, were closely involved in the final settlement. The settlement was made between the unions and there was no way we could bypass the Congress procedure of handling it. It was handled better the way it was and it could have taken longer if we had done something else. The problem in Cork was not an issue which the company could resolve. It was not the proposals we were making which were being rejected but it was who does what.

In Arklow we had a good start at the factory. We had a lot of goodwill about flexibility. But after a while it was discovered that other things, such as creation of overtime, would have a lot of attractions. We lost flexibility in the course of disputes about the best and most efficient methods. That developed over the years and it is only in the last year and a half or so, particularly in the last year when we closed the ammonia plant there and had Marino Point coming on stream, that there was a realisation of the possibility of a loss of jobs. We have had good production in Arklow in the last year.

92. Deputy L. Lawlor.—In the light of the spin-off possibilities from Marino Point, are there profitable activities that could be entered into because of the capital situation at present? As regards possible indirect unintentional wastage of CO2 do you intend, or is it profitable, to put in a CO2 recovery plant?

Professor O’Donnell.—We have a CO2 recovery plant at Marino Point.

93. Deputy L. Lawlor.—Is that recovering all CO2?

Professor O’Donnell.—It does not recover all the CO2. It is used in two ways. Some of it is used to make urea. You react ammonia and carbon dioxide to make urea. Part of the CO2 which otherwise would go to waste is used for urea manufacture. The other part of it is recovered for refrigeration. It is not economic to recover all the CO2 at present. You would have to build a very large urea plant if you were to try and absorb it all or back it up with a much larger liquid CO2 plant than would be needed for the Irish market.

Mr. Gowran.—With regard to CO2, we moved the plant in Arklow, which was tied in with the ammonia plant in Arklow, to Cork. We are commissioning it this week. Instead of producing CO2 in Arklow we have moved that production unit to Cork. The production unit we moved from Arklow will be able to produce marginally higher in the Cork situation.

94. Deputy L. Lawlor.—The reason I asked was because in my own constituency an employer, during your overhaul period in Arklow, had to lay off people because of the lack of CO2 in his process. This is an American company doing confectionery work. Are other employers depending solely on NET in a vulnerable situation and can you meet these demands?

Mr. Gowran.—NET have not been producing CO2 for sale to the market since we shut the ammonia plant down in Arklow at the end of February this year. In the meantime all the liquid CO2 has been imported. The distributor made arrangements to do that. Once we are back in production he will get his supply from NET because we are the only source from which substantial quantities of CO2 are available in the country. If NET have a problem he is geared to import any surplus but imports are very expensive in terms of the overall market.

95. Deputy L. Lawlor.—CO2 is a profitable business?

Mr. Gowran.—CO2 is a very profitable business for NET. We would like to see it expanding. The people who are distributing it are trying to advance the market. We will have capacity in Marino Point to cope with the expansion of the next three or four years.

96. Deputy L. Lawlor.—Why not import it, sell it and make a profit on the shortfall?

Mr. Gowran.—It is not profitable to import it. The distributing company had to do it during the period when we were out of operation. We are commissioning that plant at present.

97. Chairman.—You told us that you have a maximum capacity of 370,000 tonnes of CAN. You are bringing up urea to fill the demand. There seems to be a suggestion, which in our discussions you would not entirely accept, that urea is not quite as satisfactory or as popular with farmers as CAN. Is there a danger that because of limited capacity somebody may import CAN and take up the slack and interfere with your sales of urea?

Professor O’Donnell.—Urea will not be a problem. I am reading from a summary of a report on studies done on urea by the Agricultural Institute to which Mr. O’Brien referred earlier. The concluding paragraph of this report states:

“Urea can be reliably used to replace CAN as a source of N for grassland from very early spring onward until the surface soil begins to dry out and the base of the sward becomes dry. From our experience application of urea would be reliable until at least mid-April/early-May.”

Accepting that statement there is a substantial latent market for urea even accepting the principle that at certain times of the year one does not apply urea but CAN. On the other aspect—the danger of our limited CAN capacity proving to be a problem—among the strategies that we have been looking at to rationalise activities in Arklow there is one that would increase our capacity of CAN.

Mr. Gowran.—We mentioned in the submission that we were looking at a CAN granulation unit for Arklow. This would do two things. It would eliminate our present problem with the Prill Tower; it would rationalise our total CAN production and would also increase our output of CAN by 70,000 tons per year, which in itself could make the project very profitable. If we do that we will also be increasing the amount of ammonia we will be using in Arklow. That would go up from the present figure of 150,000 tons per year to about 190,000 tons per year. It would reduce the amount of ammonia which we would be putting on the export market from Cork. That is one of the proposals we have been considering in the Arklow context. It would mean rationalising and it would improve the output per man also.

98. Senator Cooney.—But it would require more capital? How much?

Mr. Gowran.—The figure we have is over £8 million, everything included.

99. Senator Cooney.—Is that part of the submission to the Department? Is that built into it?

Mr. Conlon.—Yes.

100. Senator Cooney.—On the question of urea, what form did the market survey take in ascertaining the demand for urea?

Mr. O’Brien.—We conducted the survey in June 1978. It entailed an interview with agronomists, about 500 farmers, all 50-acre farmers, and it obviously was taken at various points throughout the country to give us an overall view. We covered a number of aspects, the main one being the farmers’ attitude to NET coming out with urea in line with the advice coming from the Agricultural Institute. In other words, NET would be marketing urea in 1980 and we wanted to know how they felt about it; would they be keen buyers; would they prefer it to CAN; would they prefer it to NPK on their grassland? We got a positive result to that after which we planned to sell 100,000 tons of the product during 1980. We organised an advertising campaign to go to the CAOs and their staff to spread the message. That campaign started in early January. It was very much upset by the problems at Marino Point. Just when demand in response to our advertising came, when it was at its highest, plant problems both in relation to production and bagging the product left us in the situation where we had to ration the product released during the months of February, March and April. Indeed, we had to import some more urea to try to meet the requirements of our customers.

In the event we sold 53,000 tons but in the ensuing shortage we estimate that nearly the same quantity came in during the period January to June. Already we are satisfied that approximately 100,000 tons of urea will have been sold to the farmers as a result of our campaign. Unfortunately, only about 54,000 tons of that will have been sold by us but, again, we are satisfied that with proper conditions, we will increase that tonnage next year and, if the price relationship is right, that will continue for three or four years by which time most of our CAN and urea will be taken up. The problem may then be, as the Chairman says, not so much the importation of CAN or urea to replace ours but to keep the market requirements satisfied. If that happens—it has happened over the years—NET are in quite a good position to supplement our own production with that type of importation. Indeed, we have traded that way for the past two or three years when we were short by buying it in and trying to make a small trading profit on it. Of course, it would not be in any way as remunerative as our own production.

101. Senator Cooney.—Do you intend doing any studies to gauge the acceptability of urea among those who have now used it, most of them for the first time?

Mr. O’Brien.—We will continue to use our research team on more studies on this as we go along. We now have to sit back and assess the situation, both in relation to what we will have available, of pricing structures in the coming season, and the reaction of the farmers and wholesalers to what we have done already this year.

102. Senator Cooney.—You will be doing a study like that in the coming months?

Mr. O’Brien.—We will. In fact, we are more optimistic about urea than we would be about, say, more CAN because we think urea for grassland and silage is definitely going to be popular in the future not only in Ireland but, to an increasing extent, in England, France and Germany where we already have built up small markets.

103. Chairman.—Popular because it is better or because it is cheaper or both?

Mr. O’Brien.—Price has a lot to do with it, so the relationship between the price of urea and CAN on a per unit basis is critical. This is going to be one of our main problems.

104. Chairman.—Is it cheaper at the moment?

Mr. O’Brien.—Yes.

105. Senator Hillery.—Do you feel that there is a need to promote the corporate image of NET as an institution to enhance the acceptability of your products among the farmers or are you satisfied with the present position in that regard?

Mr. O’Brien.—We are very happy with the corporate image in relation to the marketing of our main product, NET nitrate. In fact, it is quite difficult to sell imported CAN at times to a farmer who is accustomed to using NET nitrate. We have promoted a CAN which is 27½ per cent N. Very little of this is made elsewhere and normally the imported product is 26 per cent. We have not really got an image in NPK fertilisers where our market share is very low. We tend to channel this through the existing sellers of it. With urea we would be anxious to build up a corporate image on that. We must pick the right time and the right stage to do it because at this time with our financial problems and our shortage problems we have tended to keep our head down.

The witnesses withdrew.