Select Committee on Welsh Affairs Minutes of Evidence


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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