Examination of Witnesses (Questions 20
- 39)
THURSDAY 1 MARCH 2001
MR MICHAEL
J LEAHY, MR
MICHAEL WALSH,
MR JOHN
ROWSE AND
MR BOB
SHANNON
Mr Edwards
20. Could you explain the background to the
unions' proposed buy-out of Llanwern? How can you run Llanwern
at a profit when Corus believes that it can not be run at a profit?
(Mr Leahy) Prior to the announcement on 1 February,
there was a great deal of press speculation about whether or not
Llanwern would be closed. ISTC engaged experts in the industry
to have a look at whether or not it would be possible to purchase
Llanwern. The first question we asked was whether or not it would
be possible to sell three million tonnes of hot rolled and cold
rolled strip into the market. The answer we got was yes. There
was a temporary problem with the question of exchange rate, but
given that that exchange rate came down in the next 12 months
there was no reason why Llanwern as a plant could not operate
profitably and there was a market in Europe and elsewhere for
those three million tonnes of production.
21. Why could your expert advisers not give
the same advice to Corus?
(Mr Leahy) Corus had made their own judgment. We were
not privy to what views they had. I think Fokko van Duyne and
John Bryant took the view, in conversations we had, that it was
a temporary problem, that they should preserve the present plant
configuration. The fact that they announced 4,400 job reductions
in the middle of 2000—those job losses had not even worked
through the system so they did not even know what cost reductions
would have flowed as a consequence of that, before they made the
decision to make the announcement on 1 February. Our view was
that there would be no problem. Obviously, there would have to
be some changes at Llanwern but effectively those changes would
not need to be draconian and there was a market for the three
million tonnes of steel that were being produced at Llanwern.
22. Sir Brian Moffat has repeatedly said that
he would not want you to do that buy-out because it would produce
competition. What is your response to his view?
(Mr Leahy) He is admitting that what we said is right.
There is a market there for the steel and he was fearful that
we would be able effectively to compete in that market.
23. You sought expert advice. It does seem extraordinary
that Corus may or may not have sought expert advice. You could
have come to the same conclusions. You could have been doing them
a favour in giving them the same advice.
(Mr Leahy) I do not know whether they consulted experts
or not. Our primary concern was whether or not there was an alternative
to the closure of Llanwern because there was this great speculation
at the time that they were going to close Llanwern. We took expert
advice and that was the expert advice that we received.
Mr Smith
24. It appears that you say that Moffat refused
to negotiate on the basis of not creating any further competition
in the United Kingdom, which I think is a very interesting response,
if right. It appears he said to the Trade and Industry Committee
on 14 February that that is not the case and you withdrew the
bid.
(Mr Leahy) No, that is not true.
25. We would like to clarify that because it
looks as if it is a clear inconsistency.
(Mr Leahy) I think he said that he had received no
offer but this is pure sophistry. I wrote to Brian Moffat on 23
January, asking for a meeting to discuss our offer urgently. As
our written evidence will show and we can demonstrate in the letter,
he wrote back on the 29th stating, "I do not think it appropriate
for me to discuss a possible acquisition of Llanwern by you."
On 29 January, I wrote to Sir Brian again requesting another meeting
so that we could discuss it and we have never received a reply
to that letter. The announcement obviously was made on 1 February.
Since the decision to close half of Llanwern, the steel making
end, it would be impossible to take over half of Llanwern, because
you would have three million tonnes of liquid steel with nowhere
for it to go.
Ms Morgan
26. I was raising the same point as Mr Smith
but I would like to be absolutely clear about this, because he
did say in his evidence to the Trade and Industry Committee that
there was a proposal from ISTC that they wished to consider the
thought of buying Llanwern before Llanwern had been identified
as a possible closure situation; in the event, they have never
taken that further. When he gave that evidence he did seem to
imply that you had not pursued this point. I wondered if you could
repeat those dates for the letters that you sent.
(Mr Leahy) We wrote on 23 January. We received a reply
from Sir Brian on the 29th. We immediately wrote back, because
we did not know precisely when they were going to make the announcement,
and said, "Please reconsider our position." They then
made the announcement on the first and we have never received
a reply to our letter of the 29th.
27. The suggestion that you might be involved
in this buy-out has never been followed up by them?
(Mr Leahy) No.
28. They have not responded to you, rather than
you not taking it further?
(Mr Leahy) No. We have said subsequently in the press
that we are not interested in buying half of Llanwern.
29. I understand that now, but at the time?
(Mr Leahy) Yes.
Mr Caton
30. I represent the Gower constituency which
includes Gorseinon, where the Bryngwyn works are. One of the options
that the workforce there has been discussing is the possibility
of a buy-out. They think they have a market for what they produce.
They believe they have been profitable. It is not their first
preference; their first preference is exactly the one you are
pursuing of getting Corus to change their minds and continue production
there. What would be the view of the unions if they went down
that road?
(Mr Rowse) There would be problems with that, not
because of the market, but because of whether you could in a quick
space of time get the workforce to agree to buy it. Put in that
context, it is not the ideal solution, as you say. This is part
of an ongoing debate. When they were running a single line there,
it was a highly profitable company. It has a market and that market
is very much in the locality, in the Swansea and South Wales area.
The current discussions surround whether the company is prepared
to allow the site to go back over to one line again. There will
be job losses and restructuring around that but the essential
establishment would be sound on that basis. It was only with an
optimistic market that they went up to two line production very
recently.
Mr Paterson
31. Can we pursue a little further the potential
for your project? You talk in paragraph 4.4 of your submission
about industry expertise and sources of finance. How far did you
get? Can you give us a list of customers who might have bought
this extra product? Could you give us people who would have backed
the organisation? Can you explain why, given Corus's enormous
resources, they did not identify these customers?
(Mr Leahy) We took industry expert advice on this.
We were in a position to put a proposal forward but all that is
commercially sensitive. To reveal that at this stage is grossly
unfair.
32. But you have a potential list of customers
and financial backers?
(Mr Leahy) When we had this expert advice, we were
told quite clearly. We did not go into precise customers. The
industry expert clearly told us that there was a market for three
million tonnes of hot rolled and cold rolled strip and on that
basis we decided we could effectively proceed.
33. You mention an expert; is this one man's
study or did more people go into this in detail?
(Mr Leahy) Obviously, the individual is supported
by his own experts as well. He is a very renowned individual who
knows a great deal about the steel industry, not only in this
country but worldwide.
34. Has he been in touch with Corus?
(Mr Leahy) No.
Mr Llwyd
35. Do the three million tonnes include production
for the home market and export?
(Mr Leahy) Yes. Llanwern produces three million tonnes.
Mrs Williams
36. You say that Corus has rejected offers by
unions to work in partnership with you, the government and the
National Assembly for Wales. Could you explain to us exactly what
arrangements you are proposing to Corus?
(Mr Leahy) We have had some discussions with our local
representatives. These matters are extremely complex. As a general
secretary, I do not know all the minutiae of every detailed operating
plan. We have given some expertise but our local representatives
have been in dialogue with the companies locally to work out plans
for essentially the preservation of the current capacity, but
operating at a lower level. That is on the one side. On the other
side, we have had discussions with government concerning possibilities
of temporary short time working and training during a period in
which we would restrict output at the various plants. Our view
is that it is a temporary phenomenon and if we get a respite we
are reasonably confident that the main problem regarding the question
of exchange rates will right itself. We believe something like
even 2.90 to the Deutschmark would put the company in profit and
therefore hopefully, if that was possible, we could return to
some normal production. The plans also recognise that there may
be differences from plant to plant but some permanent cutbacks
as a consequence of Corus's proposals. It means capacity cuts
but it means that the overall configuration is retained for the
future.
(Mr Shannon) If you take Ebbw Vale, for instance,
the proposal is not that the work is going. They are transferring
it elsewhere. When you get into that sort of detail at the plant
level, you have to try and identify exactly what Corus's commercial
rationale is behind that. Is it because it is just the strength
of the pound in terms of that part of the business? Is it through
either productivity increases or cutbacks in capacity that would
make it commercially viable? All of the plans that are going forward
are based on that assumption, that it has to be a commercially
viable plan. The difficulty in talking to them—of course
there are commercially confidential matters within that, but within
the workforce themselves they found over the years there is tremendous
commercial expertise. These plans also involve the whole of the
industry's managers, so 5,000 are fully supportive of these plans.
They are using their expertise as well as our own expertise to
put these arguments forwards. It is not a case of shop stewards
making them up on the back of a cigarette packet and putting a
plan forward. They are being produced in a professional way, with
an understanding of the commercial processes within the plants.
It is identifying those aspects, like Ebbw Vale where they are
moving the work to another plant. What is the actual implication
of that? If that does not happen, what will the workforce do to
make that commercially viable? If in the end there is just a grand
sweep it places them in some jeopardy but Corus's own plans themselves
do not just rest on a single solution. They are all based around
the complexities of how one plant has supplied another. If you
look at the evidence, Sir Brian Moffat has referred to how that
is made up. That is why, rather than us produce just one grand
plan across that, we have gone into those intricate details plant
by plant, each of the plants looking at their own commercial solution
for this problem and bringing it forward before we meet Corus
again.
(Mr Rowse) To illustrate that, it was not so long
ago that the future projections were given to the workforce and
the detailed analysis of the changes they needed to make to meet
those demands. There already is in their minds quite a bit of
detail that the company shared with them on a daily basis. What
they need to ascertain is what has put Ebbw Vale in jeopardy since
then. There is a broad sweep taking place here and the restructuring
is overlooking some quite supportive detail. A penny profit is
better than a penny loss, is it not? That means that if the plant
makes a penny profit, for instance, it should be in the clear,
if all the other considerations are true. It is this kind of difficulty
that the workforce has with being given very detailed views of
where the company is, say, in the summer of 2000, again reinforced
in the autumn of 2000, and suddenly in January 2001 it is in jeopardy.
It does not make sense. The company have the knowledge that they
need to have a detailed discussion with the workforce in Ebbw
Vale and hopefully that will be given the integrity it deserves.
Mr Llwyd
37. Effectively, what we are saying is that
there are rescue packages which are viable in respect of each
plant. Over and above that, we have the operating age which could
quite legitimately be brought down.
(Mr Leahy) Correct.
38. Really, we have a viable, up and running
business with some difficulties. It is a cyclical industry of
course, but nevertheless this is not cloud cuckoo land; it is
realistic economics. You have a viable proposal to put and yet
there are further grants of assistance that you can draw on which
you could add to the package. Is that right?
(Mr Leahy) We have not dotted all the i's and crossed
all the t's but essentially you are right, in general terms.
39. In the light of the rather depressing and
I am sure realistic way in which you have documented the unilateral
lack of dialogue with Corus, how confident are you that in the
long term the jobs currently being spared during the restructuring
will be sustainable?
(Mr Leahy) I have to say honestly we are extremely
worried. If you take as an example Llanwern, Llanwern is an integrated
site. It produces coke; it produces iron; it then produces steel
and then it is rerolled to virtually the finished product. If
you take away the steel making side, under Corus's plan you have
to transport steel from Teesside to Llanwern for it to be finished.
This is not the first time that we have been through this exercise.
Corus under British Steel have closed a number of plants. the
first thing that happens is that the steel making part is closed.
The latest example of that is Ravenscraig where they closed the
heavy end of the plant and subsequently closed the whole site.
We are concerned about the economics of transhipping steel around
the country, 585 miles, because it will come from Teesside, be
put on bogeys, sent to Llanwern, rerolled and finished. Some of
that product will then go back to Teesside on a round trip. Sir
Brian said they had looked at the transportation costs and they
could produce steel £5 a tonne cheaper, using that route,
than they can using the steel making route at Llanwern. I personally
have been in the industry 35 years and I am a bit sceptical about
that, but those are the numbers they give. Historically, it leaves
a question mark over the future of these plants. Sir Brian has
said that this is a line in the sand; this is the end of the job
reductions, but quite frankly he said that before.
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