Examination of Witnesses (Questions 40
THURSDAY 1 MARCH 2001
J LEAHY, MR
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
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
(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
(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.
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 processit
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 denationalisationone
major strike in a different centurywe 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
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".
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
(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.
49. The 90 day consultation process began, did
it, on 15 February?
(Mr Leahy) Correct.
50. What sort discussion was there during this
(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
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
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
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
(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.
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.
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
(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.