Select Committee on Welsh Affairs Minutes of Evidence


Examination of Witnesses (Questions 80 - 99)

THURSDAY 1 MARCH 2001

SIR BRIAN MOFFAT, MR TONY PEDDER AND MR DAVID JACKSON

  80. We understand that you have restructured the debts of the company so that Corus now has a combined debt of 2.4 billion euros. Is that right?
  (Sir Brian Moffat) Correct.

  81. Does the Dutch division of the company still retain separate financial arrangements under this new structure?
  (Sir Brian Moffat) The Dutch and the English have separate bond issues which are not due for repayment for another six or seven years.

  82. It is unfortunate that you start talking about the English when you are talking before the Welsh Affairs Select Committee. Presumably you mean the British?
  (Sir Brian Moffat) The British.

  83. The reason I ask that question is, if there are these separate financial arrangements, is it going to be possible for Hoogovens to do exactly what they did before and walk away?
  (Sir Brian Moffat) No. It is a British company.

Mr Llwyd

  84. In your memorandum, Sir Brian, you suggest that the need for restructuring was brought about by the lack of growth in the United Kingdom demand and the consequential need to export an increasing proportion of the United Kingdom flat product. World demand for steel is increasing steadily. Yes?
  (Sir Brian Moffat) Correct.

  85. Most major steel producing countries of the world are increasing capacity. Yes?
  (Sir Brian Moffat) No.

  86. Therefore, my information is wrong. Are you saying that most steel producing countries in the world are not increasing capacity?
  (Sir Brian Moffat) None of the OECD countries is increasing capacity in the world.

  87. Why is Corus reducing capacity in the United Kingdom while at the same time taking a leading role in the consortium to re-establish steel making in New South Wales?
  (Sir Brian Moffat) We are not.

  88. You are not involved in the plant at Newcastle?
  (Sir Brian Moffat) We have consultants involved in advising the Australians, were they to build, what sort of plant they should build, but we are not involved with the building of that plant.

  89. You say that the situation up to this point has been dramatically worsened "by the weakness of the euro". Looking at the short term problems facing Corus in Wales, three factors have been mentioned at various stages of the proceedings and in various ways. Firstly, the exchange rate; secondly, the climate levy; thirdly, business rates. Would you indicate the cost of the non-competitive exchange rate to Corus over the past 12 months and the anticipated cost of the climate levy and the new business rate over the next 12 months?
  (Sir Brian Moffat) I am not sure what you mean by the cost of the uncompetitive exchange rate.

  90. I think it is a fairly plain question. You have made great play about the euro vis a vis the pound. It has been accelerated from factor number three to factor number one recently. I am asking you what effect in money terms that has had over the last 12 months.
  (Sir Brian Moffat) I do not know what effect in money terms it has had. I know what effect in market terms it has had, which is unfortunately that the strength of sterling or the weakness of the euro has made it impossible for us to make money against the price background that we have, and the geographical situation we are in, as far as basic flat products are concerned in northern Europe.

  91. What interests me is exactly how much that is in money terms. Surely it is possible to evaluate that, especially as you give it as one of your main reasons for these job cuts?
  (Sir Brian Moffat) If what you mean is what is base, what is a competitive rate, to be able to make money, I would guess at the present time we would have to have an exchange rate nearer DM2.50 to the pound than where it is today at just over 3. It is as significant as that. It is not as simple as that either because prices for steel in Europe are following, and always have done since we have been in the EU, the German domestic price. You have to look at the relationship not only with currency but also with prices. Ironically, although we have seen some easing up to a couple of months ago in the sterling price vis a vis the euro, at the same time, we have seen a significant decrease in steel prices, which has overtaken the sterling/euro situation. One has more than neutralised the benefit of the other. That is why I say it is not easy to give you a single answer.

  92. We took evidence a few minutes ago from people who had commissioned independent, expert evidence on the subject and they said that Corus could be making money at a DM2.9 to the pound rate.
  (Sir Brian Moffat) No, not with the basic products in the market that we have at the present time.

  93. Do you think it is wise to base long term restructuring decisions on variable factors such as exchange rates?
  (Sir Brian Moffat) These are not long term. Based on the United Kingdom demand, the currency situation has merely aggravated that scene for over two years, but the basic problem is the lack of demand for steel in the United Kingdom against the size of the business we have in the United Kingdom.

  94. Can I take you back to my question and ask you, please, to respond about the climate levy and the new business rates?
  (Sir Brian Moffat) The climate levy will cost us between £8 million and £10 million. I am sorry; I cannot remember your question on the new business rates.

  95. Previously you said eight million as a flat figure. It is eight to ten today, is it?
  (Sir Brian Moffat) It is of the order of eight to ten. It can vary.

  96. The other question was on the new business rates over the next 12 months.
  (Sir Brian Moffat) I cannot tell you our rate. I will if you wish by all means let the Committee know in writing.

  97. Was that not a factor in your decision at all?
  (Sir Brian Moffat) No.

  98. You did not discuss having a rate holiday from the National Assembly for Wales or government here?
  (Sir Brian Moffat) Nobody suggested we could have a holiday of rates, either from the National Assembly or the government.

  99. Did you ask for it?
  (Sir Brian Moffat) We have appealed, as is our right, and we answered also to the Trade and Industry Committee. We have appealed for rate rebates. We eventually got them after seven years.



 
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