Select Committee on Welsh Affairs Minutes of Evidence

Examination of Witnesses (Questions 40 - 61)



  40. Do you think, in all honesty, that there is a long term future for Llanwern as a finishing plant?
  (Mr Shannon) A lot depends on getting from Corus what its medium term plan is in terms of its investment strategy. A huge amount of money is needed for an integrated plant. There are some countries that would do it for political reasons but on a straight, commercial basis it is difficult to see another integrated plant being built in the United Kingdom under the current market conditions. As part of our strategy, we have asked them what their investment plan is and we were told at one stage about a blast furnace at Llanwern and there has obviously been a cutback in terms of investment. What they are doing at the moment is maintenance investment or some minor investments to improve the product, which is sweating assets in the normal way companies do. It is getting an understanding of what their investment plans are. Even with the 6,000 redundancy proposals, there are still 22,000 workers in the United Kingdom. It is a major business by anybody's standards and if you had a knock-on effect of that you could easily double it. We have said to them, "Your line in the sand means what?" because we judge that line in the sand based on your investment plans. They had to withdraw from Poland recently where they were looking to make a major investment there. It seems now not to be part of their strategy. We would have a lot more confidence in what they were doing for the future if there was an investment strategy that actually reinforced their ability to stay within the United Kingdom. If they continue in terms of the 22,000, the points that Michael has made about the infrastructure costs, they are currently restructuring just to supply the United Kingdom market. We have pointed out to them more than once as to whether our arguments have any validity. We argued this over Workington. We consistently said to them there is a ground market as well as a strategic market in the United Kingdom. Corus used all the arguments they are currently saying now and told us essentially that we did not understand the business. This was a commercial decision. We have assisted with that. Workington now, as we know, is a profitable plant. They are working all the hours God sends. It would not be in existence if we had accepted that argument, if the local MP in the community had accepted that argument. We are saying similar things on a larger scale and I do not think the company should really be concerned. If its commercial viability is as it says it is, it should be happy to have that sort of scrutiny and added value that the workforce has put into it. The key to their future is the investment strategy in the medium term.

  41. What, in your view, would be necessary in terms of investment to keep the remaining plants, for example at Port Talbot and Shotton, going effectively and efficiently?
  (Mr Leahy) When Corus was privatised in 1988, the public put in £3.5 billion-worth of investment. They inherited £3.5 billion-worth of investment, including £250 million for the Port Talbot mill just prior to privatisation. Subsequent to that, in real terms, they have invested less than depreciation. If you take the example of number three blast furnace, they were talking about £30 million as an investment. That is not an investment; that is maintenance. The blast furnace needs to be relined. I noticed that Sir Brian mentioned investments, six million here and eight million there, but in terms of the steel industry they are very small change when you consider, over the lifetime of public ownership, there was £3.5 billion-worth of investment. What we are fearful of is that the industry should have a bright future. The fundamentals are there; the efficiency is there. We need some entrepreneurial flare and an investment strategy that makes sense. What we do not want Corus to do in the United Kingdom is manage decline, which they appear to have done ever since they were privatised.

  42. Going back to Mr Shannon's equally helpful answer earlier on, you know the state of things by looking at the investment plans. Are you aware of the investment plans for Shotton and Port Talbot?
  (Mr Shannon) We have been shown the normal plans in terms of where they are going on a maintenance programme. They have obviously revisited the Llanwern programme. In Redcar again we have seen some investment. Unless you have a medium term strategy, none of that is sustainable in the long term. You have to invest in this industry just to survive. It is an essential ingredient.
  (Mr Leahy) The CAPL line, which is the latest investment, was 125 million in Port Talbot. Probably, the line before that in Llanwern, the Zodiac line, but in investment terms you think what a lot of money. In real, industry terms, when you consider that some of these pieces of equipment can cost £250 million or £300 million long term, it is small beer in that sense. We asked the specific question of Sir Brian when he made the announcement, "What is your investment strategy for the future?" Quite clearly, he did not have one. He said, "We will maintain our existing assets", full stop. We believe their intention is to sweat their assets and invest abroad.

  43. We are looking at the end for the Welsh steel industry, are we?
  (Mr Leahy) We hope not. We believe that the industry is of strategic importance to the rest of manufacturing within the steel industry and for the defence of the realm. I think the government understands that and I think we need to keep the pressure up on Corus that steel is a strategic industry and it is vitally important for the whole of manufacturing in the United Kingdom.
  (Mr Shannon) The answer is, not if we can help it, obviously. You could look at a similar decision in terms of the rail industry. Strategic decisions were taken then in terms of running down that infra structure which we are now paying for. We had taken a long term view of that in terms of all the other businesses because remember we are taking a lot of imported goods that are made of steel. That is regarded as an old industry. The reality is that it is a huge industry when you see all the spin-offs from it. Of course if companies like Nissan are coming into the United Kingdom are not looking at the indigenous steel industry, that affects their investment strategy because they all want to be near the source of supply. It makes absolute sense to have the shortest line and the shortest time in those supplies. We have argued with them in terms of their strategy that it makes sense because they want the custom in the United Kingdom. Corus want the United Kingdom custom. We have argued strenuously that if you take these decisions in this way you will regret it five years down the line. We have seen it before. We have argued before about having that sort of strategy and we keep on saying that it is in their commercial interest. It is not a plea just to keep jobs for jobs' sake. We consistently say that it is in their commercial interest to do this and that is the basis of all of our arguments to them.
  (Mr Leahy) To import a tonne of steel will cost £40 in transportation costs to whoever consumes steel in the United Kingdom. The other essential issue for us is that Corus have put themselves in this position, as I said earlier. They have borrowed 2.4 billion euros because of their debt. They told us 12 months ago that debt was a good thing, that most American institutions were saying to them, "It is better to go into debt because it is unlikely you will be taken over". They have this enormous debt burden. They have given £700 million to the shareholders. The interest charges on that borrowing requirement are enormous. They were paying a million pounds a day in interest charges alone. It is not well managed in our view.


  44. They are telling us that they are losing one million pounds a day, so essentially that is because they have borrowed and are paying interest of one million pounds a day.
  (Mr Leahy) Yes. It is a fact that in their press statement they said that they have just re-structured their debt and they now have a debt of 2.4 billion euros.

Mr Caton

  45. You have already expressed your disappointment, to put it mildly, at Corus' failure to consult properly with you. I think it is a central issue and I would like to have an opportunity to focus on that. Overall how would you describe Corus' consultation with Welsh employees over the proposed re-structuring?
  (Mr Leahy) They have been non-existent. We obviously read the press and we were always sceptical about whether or not Corus were leaking information to the press in the hope that when the decision came the workforce would be so conditioned to the fact that hopefully they would accept it. We have not been in any way consulted in terms of the unions at national level and at local level. We knew that they had some financial problems in terms of exchange rates and hardening of prices but we never had a genuine dialogue with them about the solutions to those problems. They have simply been extremely paternalistic and said, "We have looked at this". John Bryant and Fokko van Duyne, co-Chief Executives, had one view. The board took another view because of their borrowing requirement and they were driven by the shareholders to make a decision. The banks and the shareholders have probably made this decision, not Corus, but they got themselves into this mess in the first place.
  (Mr Shannon) We have tried to bottom out with the company, as we have with others, the rationale behind their thinking because we have explained that we might be able to help. You could argue (and some companies have) in terms of European legislation, "If we share this information with you all the trade unions will do will be to strike or counter argue and we are warning you to be on your guard". If you look at the industry's record you do not have to look into a crystal ball to read the book on what the workforce have actually done over the years. They have accepted pay freezes and they have accepted reductions in capacity. They have accepted a whole range of difficult things. All the national officers from time to time have had to go down to the plants and explain unpleasant news and the commercial rationale behind that. I cannot find a single incident where the workforce have never reacted positively. They have not always liked the news that has come across in terms of what the company needs to do but they have always responded ultimately in a positive way. You have to ask yourself what has changed. What is this difference now in terms of how the company is organising itself? A lot of its infra structure is stuck in an old way of dealing with these types of problems. We have tried to understand that and to offer not just advice in the sense that we know how to run their company better than they do, but simply to argue that the workforce will give added value to their decision making process. If they involve them in that way they will find that all companies that do that are quite successful in managing change. Just after the merger we did make an approach along these lines. The previous Chief Executive began the process and began a discussion. That was cut short on this and we consistently said to them, "What have you got to lose in doing that?" Effectively there is a process now of that happening in terms of these discussions, but we are all doing it under the publicity, which is extremely damaging to all of us and damaging and demoralising to the workforce. All the announcements since the mergers have initially sent the share price up and then in two weeks' time back down it has gone again. You see exactly this process happening all over again. We do not even understand, although we have asked the question bluntly, why they are managing in this way, in rather a knee-jerk reaction. The best we can do is to get the spotlight off in this sense and get down with this company and manage the future for those 6,000 that are threatened and the 22,000 that are still going to remain in there. They have not disappeared and they want a future as well. If there is anything we can do, short of making a citizen's arrest of Brian Moffat and trying to do that sort of process—it is enormously frustrating to have this continuing dialogue at the death in terms of saying, "The workforce are desperate to talk to you, desperate to keep this industry in terms of its success". If Sir Brian can produce chapter and verse where the workforce has not responded since denationalisation—one major strike in a different century—we want to talk to him.
  (Mr Rowse) Your question talks about the consultation process now in the 90 day notice. That is happening now. The workforce's response is to want to look at the problem. There has not been anybody who has not bought into that argument that we have put as national and regional officers back to the workforce. One of the last points we made to Sir Brian when we closed business on 14 February was that the whole debate needs to come out of the public eye in that sense and do a serious job of work. It has to have integrity and it has to be a meaningful debate with the workforce. The solutions that we are looking for are workable ones. Nobody is saying there is not a problem. I have to emphasise this. The workforce are the ones that are looking seriously at solutions and are not shouting from the battlements that they want to take the company on in any obscure way. They want to solve the problem.

  46. Would you say it is fair to say that an excellent and responsible workforce, and often a very high quality local management, is not reflected at senior management level or board level?
  (Mr Leahy) I have said already that I think the company has lacked a bit of flair and imagination in driving the business forward. We thought that was going to happen as a consequence of the merger, that they were going to really expand the business and go for it. We are now in a situation of closing down capacity. When we talk about broken promises, and Sir Brian saying to the Select Committee that they made no promises, they did make those promises, that they were going to expand the business, keep the plant configuration, produce more than 20 million tonnes, and those promises have turned to ashes. Indeed, we were told that there is a place in the sun for everyone. Our members are saying, "Michael, you did not tell us it was the desert sun that he was talking about".

Ms Morgan

  47. Going back to the consultation or non-consultation, how does that compare with how they treated European workers?
  (Mr Shannon) It was very unfavourable. There is legislation that obliges companies to do that. There is very little resistance to it. It is not that the companies are screaming for those changes. You would expect if this was a huge burden that they would be arguing consistently that there should be changes. The big difference is that they see the consultation process as added value for the workforce. If the workforce can say to you, "This is a more commercial way, a better way, of doing it", why would not any sensible company take that on, other than assuming some conspiracy against them, which is too ridiculous to be true? You have to argue all the time and that is where a lot of the competitors (and you see the companies, their sister companies in Europe or elsewhere) have a competitive edge in that way, that they take the workforce with them and they manage change. The German steel industry went through a huge change and they did not have the argument, they did not have all the publicity, all of the community involved in this battle against the company. The company is part of the community as well. They are dependent on it in order to pay their mortgages and all the other things. There has to be something wrong with a company such as Corus which is seen as at such odds with its workforce and the community.

  48. Is it at odds with its workforce in Europe as well as here?
  (Mr Shannon) Not in the same way. Nowhere near the same.
  (Mr Leahy) We can give you an example. Corus used to own more than 50 per cent of AVESTA now AVESTAPOLARIT. However, when it was owned by British Steel they wanted to close a plant in Sweden called Degators and keep the plant open in South Wales called Panteg which produced stainless steel. In fact the workforce, because of the legislation in Sweden, were allowed to put alternative proposals to the company by law and in fact the company changed their minds. They introduced a new product range. Degators is still open to this day and Panteg Steelworks has closed.

Mrs Williams

  49. The 90 day consultation process began, did it, on 15 February?
  (Mr Leahy) Correct.

  50. What sort discussion was there during this consultation exercise?
  (Mr Leahy) Up until now the consultation exercise has been focused on us as unions locally and nationally in presenting alternative proposals. We are meeting Corus on 27 March so that in detail we can present those proposals to them. We will then have to wait and see their response as to whether or not they are going to have a meaningful dialogue about those proposals and/or reject them as the case may be. We will have to wait and see what they say to us on the 27th. I would hope that they will take them away and look at them carefully before coming back and giving us a final answer.
  (Mr Shannon) There is nothing to stop Corus becoming involved in that. We have asked and said that in terms of tripartite talks with the DTI Corus should be in attendance in terms of talking about solutions. We did not want to be in the position of, a month later, someone coming up with Catch-22 and saying, "If we had known that, we could have gone down a different route but of course the 90 days are up now". We have consistently invited them along and said, "Be part of those discussions and if there are problems you can deal with them". May I just make one point about European legislation. It does not prevent closures. There have been plenty of closures in Europe. It is not a recipe for every job being saved in that way. What it does do is that at the end of it the workforce tends to have agreed that that process has been exhausted and that they have had their fair chance of putting those alternatives. It is not a recipe that says every plant, every job, will be saved and nothing ever changes. It gives confidence to the workforce that those changes have been examined properly with alternatives being looked at.
  (Mr Walsh) Perhaps I can talk about the Dutch situation where there are Corus employees in the same position as our own. There is a requirement in Dutch law that before a closure of a major facility can be carried out there must be an opportunity for consideration of the closure in a court. The whole issue is transparent to the public and justice is seen to be done. This partly explains why Corus in the Netherlands is very keen to have the consultation, because the facts are going to come out anyway if the union calls for it. There is not that same pressure here. There is not the tradition or culture for that here either. In terms of formal legal requirements on the company Corus is obliged to discuss and consult us about ways of avoiding all of the redundancies. It has got to do it in good faith. That is what the law says. We have yet to see whether that will be fulfilled.

  51. Why did the consultation begin after the restructuring was announced?
  (Mr Rowse) That is because that is the current state of the law. The trick is to get the company to talk to us before these announcements are made. These restructuring programmes are often made for a reason. Maybe their backers are bankers with whatever imperative comes behind that. All we are saying is that the workforce must be a major consideration. You cannot on one day say, "You are our most precious asset" and the next day say, "Actually you are our second or third or fourth asset". It is a question of having continuity here as well.
  (Mr Leahy) We did say to them, "We understand you have got problems. Let us sit down and have a discussion", but they would not discuss it with us. They are now discussing it because they have formally said, "We are going to close these plants and we are obliged in law to consult you within the 90 days".

  52. Is there a realistic hope of saving any of the 2,815 jobs that are going to be lost in Wales as a result of the restructuring as it is currently proposed?
  (Mr Rowse) Yes. All three of us are very positive on that. It is not just a fruitless exercise.
  (Mr Leahy) We believe that we can maintain the majority of the present plant configuration, reduce costs and make profitable the strip mills business in the long term, no problem. We really believe that.

Mr Paterson

  53. Could you also get the finance for that? I am intrigued by this. You have had a study, you have had your expert. You are convinced you have a market. What about the finance?
  (Mr Leahy) Part of it obviously was centred around the deal that was done in Rover, for instance. Whichever way this goes it is going to cost an enormous amount of money to even shut down the heavy end of Llangwern. I think the redundancy costs that they have accounted for are £220-230 million. Then there is the question of clean-up costs. Then there is the question of writing off a billion pounds' worth of assets. We believe in those circumstances that it was a sensible proposition.

  54. But you have not advanced as far as discussing finance with anyone?
  (Mr Leahy) They refuse to discuss it with us. They simply said, "Go away. We are not interested. We do not want any further competition in the United Kingdom. We are not interested in even discussing the proposition with you", so it only got to the stage of us asking to open a dialogue with them.

  55. You touched on the promises that you believe the company failed to keep. Can you briefly list the specific promises because you are quite emphatic in your submission? You say that promises made by the company have been broken.
  (Mr Leahy) Yes. The promises that they made at the point of merger were that they would keep the present plant configuration in place and there would be no reductions in the capacity as a consequence of the merger. They were going to grow the business, produce over 20 million tonnes a year and the future was bright. They were going to expand their downstream activities and the United Kingdom end of Corus was safe in their hands. That has turned out to be an empty promise because even at that time we had exchange rates that were on or about what we have at the moment. Economic circumstances have not changed since the time that they made the promise and we are saying that we have accepted job reductions, we have introduced team working, we have had efficiencies right throughout this period and every commitment that the trade unions have made they have kept. As Bob has said, it has been very difficult for us as national officials to persuade our members that it was in their long term interests to accept these changes in working practice, to secure the future of the industry. Every promise we have made we have kept. The promises they made to us have not been honoured.

  56. They blame that on the demand side. There is also the supply side question. What representations did you make to the Government because you must have heard rumours of the problems coming through on questions like the climate change levy, energy taxes and so on?
  (Mr Leahy) Yes, we did. We made representations on all those issues and we made representations on the exchange rate as well. The interesting thing of course from Corus's point of view was that they repeatedly said it was an exchange rate problem, but as soon as there was a shift downwards of the pound against the euro it then became a whole market issue and they had never mentioned that up until that point. The market had been declining in the United Kingdom for some time but they never made an issue of that. I thought we had a single market in Europe.
  (Mr Shannon) We lobbied jointly on the climate change levy facility and the Government listened and there have been substantial reductions.
  (Mr Leahy) It is only £8 million which is small beer in terms of turnover and all the rest of it for Corus.
  (Mr Shannon) It was right across the whole sector.

Mr Llwyd

  57. So despite the very positive and welcome affirmation by all you gentlemen that all is not lost and the fight goes on, from the document you have submitted it does paint a rather bleak picture of the direct and indirect job losses in the offing unless something can be pulled out of the fire. Obviously there will be problems with the employment opportunities and many other aspects and you are painting quite a realistic picture. What do you think the Government should now be doing with Corus? What kind of dialogue should the Government be having with Corus in order to minimise the damage that will be caused if the closures go ahead and if you gentlemen are not successful? We hope you will be but it may be that in the event you are not.
  (Mr Leahy) We have had a dialogue with both the Welsh Assembly and central Government. I have to say they have been extremely helpful, particularly in exploring the plan that we have for the retention of the existing capacity. Obviously there are regeneration proposals if Corus refuse to accept the proposal, but I think that we all agree that the proposal that the unions have to put to Corus should be given a fair wind before discussions about regeneration take place in any formal way.
  (Mr Shannon) The Government has responded positively. I think there is the possibility of agreement to give the industry legitimate help in that and in stretching this consistent complaint of ours about a level playing field when we see this assistance being given elsewhere because there are many ways of doing that providing there is the political will to do that. It would be fair to say that we have not only got to have support verbally but the DTI especially have given the support of their officials to looking at any way that the industry can be supported without breaking any of the rules. It has always seemed to us, although perhaps you will not expect us to say that, that we seem to be the only party at the moment which consistently obeys the rules, often to our disadvantage. I do not want to bring a discordant note to the process but nevertheless none of the unions has any complaint about the help we have had from the Government, from the community, and especially the Welsh Assembly. All of them have fought alongside us to retain this essential industry and our thanks should go from the workforce to them. That has never been a problem or in any doubt from day one.

Ms Morgan

  58. I would like you to tell us a bit about these negotiations that there were with EXi Telecoms which I believe were with the AEEU and the DTI which appear to have fallen through.
  (Mr Shannon) They have not fallen through. They were not in place of the trade union proposals. They are in addition to them. Those proposals obviously now are awaiting the conclusion of the plans currently being put locally and indeed nationally but they are still very much alive and kicking.

  59. So there is still a possibility that something will come from this?
  (Mr Shannon) If we are successful and we retain the jobs that we think should be retained and we give the workforce the credit that they have had, those proposals will still come forward irrespective of what happens within Corus. I have to make the point because there was some confusion over that. These proposals were national. They were not just aimed at Corus. They are national proposals from the organisation about the communications industry.
  (Mr Leahy) As the main steel union at the time, I was watching at six o'clock the day that we were about to meet Corus and it said that 6,000 jobs had been created in this EXi company. Clearly I do not think that was the case at all. I am sure that the media picked it up wrongly. I did say at the time that it would be a cruel fantasy to suggest that 6,000 steelworkers were going to find jobs overnight. The truth is that that is not going to be the case and, as Bob said, this was a national generic initiative taken by the AEEU which is nothing to do with Corus specifically. Any initiative is helpful but it certainly will not solve this particular problem in Corus.
  (Mr Shannon) I do not want you to be misled that that initiative is dead; it is not dead. Those talks are continuing with EXi in terms of assisting any redundancies throughout the manufacturing industry. Time will tell whether that partnership works its way through. I would hope that any company that wants to take an initiative in any area of the company will be welcome, any job creation initiative must be welcome given some of the figures we have recently seen in Vauxhall and other areas.
  (Mr Rowse) To add a point of view that is slightly different from that, there are many companies in the mad rush to wire up Britain with fibre optics towers in the utility companies that currently exist and there are arguments about whether there is job creation in that or not. Everybody has recognised that it is an initiative amongst initiatives. Whether it can solve the problem of steelworkers in South Wales and the loss of productive jobs in South Wales, and indeed in North Wales and in other parts of the United Kingdom, is always debatable. These industries make a big dynamic at the time. There is a job that needs to be done without a doubt but whether you can take one basket shape and make it fit another shape is always a continuous problem in any developing country.
  (Mr Leahy) These jobs are paid between £25,000 and £30,000 a year. They are going to be extremely difficult to replace. Our figures suggest that Corus in Wales adds up to six per cent of the gross GDP for the whole of Wales. These jobs are going to be extremely difficult to replace.


  60. As far as you are aware are the redundancy terms that Dutch workers would get greater than those that Welsh workers would get?
  (Mr Leahy) I think overall the answer is yes. Corus have said during their presentation that they wish to revisit the issue of redundancy payments. Some time ago we had a redundancy payments arrangement borne out of the previous closure process. We were told at the time, in relinquishing our rights and our agreement, there would not be any hard redundancies; that we could get productivity and lost jobs by natural wastage and through the pension fund. We have not got sufficient redundancy terms in place and Corus have said in their announcement that they are willing to discuss that issue with us.
  (Mr Shannon) That is always one of the major problems in situations like this. At what stage does one initiative stop and another start? Once you begin discussing redundancy terms, it is argued you have given up the fight. When is the right time to make the announcement to minimise damage or signal that something else is happening? It is always a difficult formula, no matter what industry you are in. When do you begin to have that dialogue with the company?

  61. Without giving the exact details, this joint bid that is now being put to Corus by yourselves and all the steel unions, the Assembly and the United Kingdom, is a realistic bid which is going to save jobs, if accepted?
  (Mr Leahy) Yes.

  Chairman: Thank you. I am going to ask if we can clear the public gallery. We are going to deliberate now on the questioning of Sir Brian Moffat.

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