The Northern Ireland Assembly - Minutes of Evidence: Regional Development Committee

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Committee for Regional Development

Wednesday 27 March 2002

MINUTES OF EVIDENCE

Members present:
Mr A McFarland (Deputy Chairperson)
Mr Ervine
Mr Hay
Mr Hussey
Mr McNamee
Mr M Robinson
Mr Savage

Witnesses:
Sir David Fell
Mr R McCullough Harland & Wolff
Mr P Harbinson
Mr R Turley

The Deputy Chairperson: I welcome this morning from Harland & Wolff, Sir David Fell, Mr Peter Harbinson, Mr Rodney McCullough and Mr Rob Turley who have come to hopefully give us an insight into the recent events with Harland. Could I welcome you first of all, and could I invite you to make any comment you wish, perhaps introduce your team, who they are and take it from there.

Sir David Fell: Thank you very much indeed Chairman. May I say at the outset that I in one sense regret that we are back here so soon again, but given the concerns and the interest which the Committee expressed in the Titanic Quarter deal last year, we thought it better to avoid any misunderstandings this year, which is why we contacted your staff last week and volunteered to come and give a briefing to you. I am very grateful to you for your willingness to set this up so quickly in the first instance.
I am wearing more than one hat. I am the chairman of the Harland & Wolff group and I am also chairman of the property companies, Titanic Properties Limited and Titanic Quarter Limited. Rodney McCullough is company secretary of Titanic Properties Limited and Titanic Quarter Limited. Peter Harbinson is Harland & Wolff group corporate communications manager and Rob Turley on my left is the planning consultant to Titanic Quarter, which as you know is the arrangement under which we and the Harbour Commissioners are jointly developing an area of Queen's Island on a fifty-fifty basis and Rob is the planning consultant to Titanic Quarter and that is to say to both parties, but he is here this morning with the agreement of the Harbour Commissioners also. If you like, I'll make an opening statement. I'm afraid it's rather complicated, long stories. I hope that you will bear with me while I try to explain how we've got to where we are.
At the start of last year Harland and Wolff was awarded an order for two roll on/roll off vessels for the Ministry of Defence (MOD). We have been building those vessels ever since. They are well under way to completion now. The first vessel is 90% complete. It is in the building dock. The second vessel is coming along quite nicely too. On present plans, we would expect to deliver those vessels on schedule or possibly slightly ahead of schedule - the first in October 2002, and the second in January 2003. All things being equal, we would have all the financial resources necessary to complete those vessels. Unfortunately, all things are not equal. In particular, we have no more orders at this point for the main shipyard. If we had orders following along behind the roll on/ roll off vessels then we would deliver them to time and pretty well to budget and move on to the next orders. But in the absence of orders we do not have the financial resources both to complete the ships and pay for the underutilisation that results after the ships have moved to the final stages of their building. Specifically, we would have substantially too many people in the workforce and we would either have to pay them to turn up to do nothing or we would have to pay them off. Either way, there is a cost involved. We simply do not have the resources at the moment to meet that cost. That is the essence of the problem that Harland and Wolff currently faces.
A bit more background - ever since we got the MOD orders, and before, we were out in the marketplace vigorously looking for new orders. The year 2001 was not the best year to be out looking for orders. There was a global economic slowdown. There was a softening of ship prices. There was an ever-increasing disparity between shipbuilding capacity in the world and the number of orders that were around. Further softening of prices and the whole of Western European shipbuilding faced ever-increasing competition from the Far East, in particular from Korea. If I just give you an anecdote of the sort of competition that we face from Korea. At present Korea can deliver a complete ship for the price that it costs us to buy the raw materials for the ship. If that is the case, it is clearly not a measure of Korean productivity. There are hidden subsidies in there. We know the prices at which you can buy raw materials in world markets. They are available to everyone. There has to be a significant measure of subsidies. That is the world that we are dealing with. Korea is still expanding its shipbuilding capacity. All of Western European shipbuilding has been suffering.
Notwithstanding that, in September last year Harland and Wolff was chasing three quite significant orders - any one of which would have solved our current problems. But then 11 September came along and the three orders that were there on 10 September were not there come the end of September. There were two of them in the oil-related industry and one in the cruise liner industry. All of the oil companies pretty well postponed investment in the wake of 11 September and the oil-related orders disappeared. And 11 September also had the impact of reducing the willingness, particularly of Americans, to travel certainly by air, but apparently also by sea. A number of the cruise liner companies got into difficulties. One significant company went into liquidation. A number of orders that had already been placed for new cruise liners were cancelled.
So in the final quarter of last year we went on trying to get new orders but it became ever more clear that that was going to be a very, very difficult task. So, alongside that we started a very major in-depth analysis of the strengths and weaknesses of Harland & Wolff as a shipbuilder. We had the benefit of building these two roll-on/roll-off vessels as part of a bigger order; four of them are being built in a German shipyard, Flensberger, and two of them in Harland & Wolff. We were able to benchmark Harland & Wolff's performance in all aspects of our business against the German yard.
What we discovered was confirmation, in a sense, of what many of us suspected already, that our productivity levels in the outfitting areas were as good as anything in Europe. We were quite competitive in the outfitting areas, but we lacked competitiveness in the steel fabrication areas. To the extent that the productivity in the yard has been lower than we would have liked, it is largely in the steel fabrication areas that the productivity suffers.
Secondly, in our review we noted that Flensberger were able to turn out more ships than Harland & Wolff in a much smaller yard. We brought in consultants towards the end of last year to advise us on what was the optimum size of the Harland & Wolff shipyard. Over the following couple of months, in consultation with those consultants, we came up with a new and smaller footprint for the yard. The two assumptions that we therefore took forward to a new business plan to restructure the yard were first that we should come out of the part of the business where we are least competitive - that is to say, steel fabrication, almost all of which is done on the west side of the building dock, and that we should consolidate the yard into the area bounded by the building dock itself and the workshops on the east side of the building dock.
That was the advice of our consultants. You can play around a little bit with what is the precise area required, but that was the advice of our consultants. The advantage to Harland & Wolff of coming out of the steel fabrication areas and concentrating on the niche areas where it is competitive was that we can reduce our overheads in Harland & Wolff from the current £13 million a year down to something like £7 million a year.
So, we have constructed a new business plan on that basis. The business plan is built on the assumption that we concentrate on those areas that we do best. We have costed the business plan. Just to give you a brief overview of the areas in which we would concentrate, they are five in number. First, we would not get out of shipbuilding per se; we would follow the examples of other yards, for example in Holland and in Norway, and undertake niche development of ships with the basic underlying premise that we will not build anything that we can buy cheaper elsewhere. It is clear that we can buy hulls of ships cheaper elsewhere, particularly in Eastern Europe, more cheaply than we can manufacture them in Harland & Wolff. If we were to buy those hulls, we can still add significant value to the hulls in outfitting them and completing the ships to specification. We are already well down the track of identifying orders along those lines. That, therefore, would be one leg of the business.
The second leg would be building on Harland & Wolff's successful track record in ship repair. That goes back historically quite a long way, but in the last couple of years, we have been successful in carrying out ship repair work for the Peninsular and Oriental Steam Navigation Company (P & O) and for Stena. We believe that we can build further on that with other shipping lines, and most significantly also with the Ministry of Defence because, as you will know, the Ministry of Defence has announced that it will be spreading the naval repair work around British yards. We have been in touch with the Ministry of Defence to tell them that we are interested in that work, and they have responded by welcoming the return of Harland & Wolff to that area of activity. Ship repair we think it has been a reasonably profitable area in a small way over the last year, and we think we can build on that. So, that is the second leg.
The third leg is that we have also in the last five years done some quite profitable work on upgrading oil rigs, and those of you who go along the Sydenham bypass every day will see that there is an oil rig sitting at the end of the dock at the moment, which we upgraded last year, simply sitting laid up there at the moment waiting for the owner to place it in the North Sea. But that is a profitable contract for us and we think there will be more, though not this year I have to say, because the oil industry is still recovering from the 11 September shock, and until there is some stability in oil prices we are not going to see much new investment by the oil companies, but we do think that that is a potentially lucrative market from next year onwards.
The fourth leg of the business is that we have now within Harland & Wolff a quite successful technical services company. That is a company which embodies the draughtsmanship, design and engineering skills of Harland & Wolff. It employs 75 skilled people and it was set up originally to provide internal services to Harland & Wolff shipbuilders. In the last few years it has gone into the export market and it is now selling its services in a variety of export markets, and in the last year it has landed two quite lucrative contracts, one in America and one in China. That is a successful part of the business and we'd like to see it continue to move forward.
And then the final leg of the business is that, based on our belief that the time of renewable energy has come, we have identified a significant opportunity for the construction and placement and maintenance of windmills offshore to generate electricity, and we would propose to get into a production-line manufacture of the pylons, both undersea and above-sea elements, for offshore windmills. We are, it is a brand new business for us, but we have been researching it now for over a year. We have the benefit that there is another Fred. Olsen company called Fred. Olsen Renewables, which is active in that area and which is able to give us some technical input. They are themselves bidding for some of the offshore fields around the British Isles and in addition we are in negotiations to set up a joint venture with a Dutch company who are already in the business of manufacturing piles and would be happy to share the work with us because they would wish to concentrate on the most efficient part of their business because they have invested heavily in thick steel fabrication. They would be happy for us to do the remainder of the work on the outfitting and more value added, so we are in negotiations with them. And secondly, we are in negotiations with Mitsubishi Heavy Industries because they have at the moment turbines which are basically the windmills and the clever bits at the top, the gearing and so forth. They already have turbines which are capable of generating one megawatt per windmill and they have a research and development programme which they are hoping will take them to windmills which will generate three megawatts or thereabouts by the end of the year. So we are in negotiation with both of those companies, and we believe that there is a business to be built on but, as I say, it is a brand new business for us.
So those are the legs of the business. We then come to the nasty bit, where you sit down and cost how we get from where we are to that new business. First of all, by the way, you are going to say "Is this viable or not?" We have looked at it; there are certainly risks in the business now. I am not going to run away from it, but there are risks in any business. We think it can be viable, though there is still work to be done on how precisely we implement it, but we have enough work done now to know what it is going to cost, and the cost is well in excess of £20 million. For a company that has no cash, that is a big bite. We certainly do not have the resources internally in Harland & Wolff, so we have looked at how we would finance a business plan that is going to cost over £20 million. The first and most obvious way is that we land a new order but, as I say, we have been trying now for a very long time to get a new order and I would have to say that as of today there isn't a new order for a complete ship that is imminent, though there are some orders which are much closer to fruition if we go the route of the business plan and buy a hull from elsewhere.
Getting a new order would certainly salvage us from our present predicament and enable us to do what is the right thing for the yard, and that is to contract it under the smaller area. It will become much easier to manage in a smaller area, and the overhead will be reduced substantially. But an order is not the answer.
The second option that we have pursued is the one that I talked to you about last time I was here, and that is, the real reason we are now in a hole for cash is because of the major dispute we had with Global Marine for whom we built the two drill ships two or three years ago, and we have spent a lot of time putting together the details of a claim against Global Marine. You may recall that they cleared us £64 million for the changes in design while the ships were being built. We have put in a claim for almost £200 million. If we got that claim in full, then clearly we do not have a problem.
I do not think anyone expects that we are going to get that claim in full, but even a significant number of millions of pounds would help us a great deal at the moment. Alas, having put our detailed claim to Global in between December last year - the first part of the claim - and January this year for the second part of the claim, we have now had a response from Global to say that they are not interested in a settlement, and if we want to pursue them we should take them to court. If we take them to court, it has a number of consequences - one, and the most important one in a sense, is that the tribunal hearing will probably take probably 18 months, maybe two years. It certainly takes us well beyond the time frame in which we are addressing the current crisis in Harland and Wolff.
The second consequence is that we will have to spend a very great deal of money to pursue them through the courts, and I should say that that amount of money is factored into my more than £20 million figure earlier, but it is a significant amount of money just to pursue Global, and most of it will go to lawyers.
And the third consequence is that we do not know what the outcome of any tribunal hearing will be, so to put your bet on that is to risk the possibility that the tribunal will say "Well, we have heard the case. Both sides have made their points well. Let us just leave well enough alone. No more money changes hands.' So there are a lot of risks attached into that. But let me say that even this week we are continuing to pursue Global in the hope that we can achieve some settlement with them, and if we did, it would certainly help us enormously to pursue the business plan that we want to pursue.
The fourth option we have looked at is to ask the Ministry of Defence whether they would be willing to provide sufficient funds to enable us both to manage the transition through where we will have too many workers and at the same time complete the two Ro Ro vessels, and they have given us the thumbs down on that, and I suppose, we are not really surprised at that.
Our fifth option, which we looked at but we did not even pursue, is to say "Is there any form of Government help from the Northern Ireland administration?" And we are not in that business. We do not believe that there is a case, frankly, for us to ask Government to assist Harland and Wolff yet again, and we are not going to do that.
And then the final option is to turn to our parent company and say to them "Here is a business plan. Do you think it is worth supporting? And if you do think it is worth supporting, are you willing to provide the finance for it?"
Well, they have crawled over the business plan, and they have come to the point of saying to us "This business plan does look as if it is worth supporting, but remember, remember the indebtedness of Harland and Wolff to the parent company." If Harland and Wolff went belly up today, the parent company would be writing off £70 million. And I should just say, the parent company is not some sort of benevolent family trust. I know there is a belief that the parent company and Fred Olsen are in some sense inseparable. But the parent company, Fred. Olsen Energy (FOE), is a public company. It is traded on the Oslo stock exchange. It has many thousands of shareholders to whom the company is responsible, and they will not take a decision which is meant to be benevolent to one of its subsidiaries, unless it makes sense for the company's shareholders.
Against the background where they funded us through the big Global crisis, their total exposure at that time, by the way, was £140m. It is a public company; it is traded on the Oslo stock exchange. It has many thousands of shareholders to whom the company is responsible, and they will not take a decision which is meant to be benevolent to one of its subsidiaries unless it makes sense for the company's shareholders.
Against a background where they funded us through the big Global crisis - their total exposure at that time by the way was £140 million; it is now back to £70 million but still with a potential that we have to write off £70 million from the balance sheet. The answer from the parent company is "We would be willing to consider supporting this business plan only if there is a means of securing; providing us with security for whatever additional funds that we put in". I think that that is an understandable business position to take.
We have scratched our heads and said "How can we give them security?" And the formula which we have come up with is to say that "Because it makes good sense if we are ever going to have an efficient shipbuilder in Harland & Wolff to contract onto about half of the 165 acres that it currently occupies". Because that is good for the business plan we do in the process free up another 75 or 85 acres, depending on where you draw the lines precisely, of land, and that land is held by Harland & Wolff on a long-term lease from the Belfast Harbour Commissioners. The lease runs to the year 2114, but there is a restrictive covenant in the lease, and the restrictive covenant restricts the economic activity in that area to shipbuilding, ship repair and heavy engineering.
What we have said is that if we were able to negotiate an arrangement with the Harbour Commissioners where that restrictive covenant was removed, then there is an uplift in the value of the lease, which as I say runs to 2114. That uplift in the value of the lease could be used as the security for Fred. Olsen Energy to fund all of the requirements of the restructured shipyard. Our hope was that if that restrictive covenant was removed we could negotiate an arrangement with the Belfast Harbour Commissioners subject to the memorandum of understanding that would release pretty well as much as was needed to finance the shipyard.
In other words, it was £20 million to see the shipyard forward to a viable future; then we hope that we might get something like £20 million from a renegotiation of the lease. That made two assumptions; the first was that the valuation anyone would put on the lease with a restricted covenant removed would be sufficiently higher than its Present Value to make it worthwhile. Secondly, that we could negotiate an arrangement with the harbour commissioners so that we had a sufficient percentage of that higher value, leaving us enough to pay for the business plan and the yard.
We have been negotiating just in the last week with the Harbour Commissioners; we only opened the negotiations at the end of last week because there were a number of preconditions that had to be satisfied. I will come back to that in a moment just to tell you where we are. In the same way that I said to you, Chairman, that we did not want to bounce anybody in this Committee with a done deal which we came to defend, we thought we should be absolutely open on all this; tell everybody what we are trying to do, answer any questions that came up which might be to everyone's advantage if they were answered. And we also were determined that we were not going to bounce the two Ministers involved.
So we went on 25 February to make a presentation of the sort that I have just made to you to Sir Reg Empey and Peter Robinson and explained what we were proposing and asked for their agreement that we could enter into discussions with the Harbour Commissioners. Not unreasonably, Sir Reg, having consulted with the IDB, decided to invite PricewaterhouseCoopers to make an assessment of our business plan in the knowledge, by the way, that we were not asking him for any money - this is all going to be funded from the private sector. But he nevertheless wanted to have a view as to whether the business plan made sense before he could say to Peter Robinson that it would be in order for Peter Robinson and his Department to contemplate a property arrangement with the Belfast Harbour Commissioners which would come to him under the memorandum of understanding. However, it was agreed that we could do some preliminary discussions with the Harbour Commissioners and we have had those preliminary discussions.
In the meantime, PWC have reported to Sir Reg, and I will happily talk to you about their conclusions. We have had a further meeting with Sir Reg and Peter Robinson on Monday of this week and we plan to have another one on Friday of this week. Where we have got to is that PWC have done an appraisal of our business plan. They have concluded that, of all of the options open to Harland & Wolff, the business plan that we have put forward is the one that makes most strategic sense.
As a concept, that is the right thing to do, but they have identified, as we have ourselves, some soft areas of the business plan and some risks attached to the business plan. They put those points to us before they even presented their report to Sir Reg and we have not disagreed with them. We accept that there are risks in the business plan - there are risks in any new business plan. We know where the risks are and we are happy to address the risks. There were no surprises for us in the PWC report. That is sitting with Sir Reg.
We have, in our preliminary discussions with the Harbour Commissioners, concluded that of all of the options available to us, the option, which makes most sense from everyone's point of view, is an option similar to Titanic Quarter. That is to say that the Belfast Harbour Commissioners, in return for freeing up the lease and removing the restrictive covenant would be looking for a significant share of the action. Whereas we simply pay rent to them at the moment for that piece of ground, what they would like to achieve is something like Titanic Quarter where we effectively become fifty-fifty partners. I cannot describe the Harbour Commissioners in those terms because they are essentially the landlords and we are the tenants.
On the other hand, if you look at the agreement we share fifty-fifty the costs of developing the land and profits that are made from the land development are shared fifty-fifty between the Harbour Commissioners and ourselves. They are pursuing a framework very similar to Titanic Quarter. We have not reached the end of our negotiations. We have agreed on some points, but we are stuck on the percentages. The Harbour Commissioners are looking for more than 50% and we are looking for more than 50%, so we have not reached agreement. We are not looking for 50% as a figure grasped out of the air. We believe that there are significant differences between this piece of land and the Titanic Quarter land lease which justify us having more than 50%, but I should also say in fairness that the Harbour Commissioners have views which they regard as equally strong in favour of them having more than 50%.
Alongside that we have taken some valuations for the land. The valuations have come out at somewhat below £40 million. If we were to get 60% of that, then I think we have the resources to do the shipyard arrangement. If, for the sake of argument, we settled - and I am not pre-empting the negotiations - on 50%, 50% of somewhat less than £40 million is not enough to do the deal that we were looking for on the yard.
Therefore, we are doing two things. Firstly, we are continuing to negotiate with the Harbour Commissioners. We have a further meeting with them tomorrow in the hope that we can get an arrangement which throws off enough value to persuade our parent company that they then do have the security to back the shipyard.
Secondly, we are looking again at the business plan to see where we can make savings. There is one very clear area where we could make savings, but it would not be commercially sensible for me to tell you about it because it involves a third party and for me to talk about it in public would give that third party an advantage. I am quite happy to tell you in closed session afterwards, if you care, where that sum is, but I do not think it is wise for me to talk about it in public, if you do not mind. If all of this works, and if we get an arrangement where, for the sake of argument, the business plan requires £19 million, and we have £19 million or more from the property arrangement, that £19 million sits fairly and squarely with the Harland & Wolff group. It is in our ownership. It is for us in the Harland & Wolff group to decide what to do with it.
If we had a lot of time, we could go to the open market and see if we could sell it for £19 million. However, we do not have a lot of time. We have only a few weeks to make a decision as to whether the shipyard has any future at all, or whether the insolvency laws come into play and require us to liquidate the company. We do not have time to go out and test the market. We have asked our parent company whether in those circumstances they would be willing to buy the lease. They have indicated that if it is commercially viable, they are willing to contemplate that.
I shall explain the transaction to you. There is no money appearing from Belfast and going to Oslo. The value resides in the lease, which is owned by Harland & Wolff. We would sell that to our parent company. In my example, they would pay us £19 million, with the total value independently verified. We would put all of that money into the business of running the restructured shipyard. It is a complicated matter. I apologise for taking so long. I hope I have covered some of the points that might have been on your minds.

The Deputy Chairperson: On behalf of the Committee, I thank you for your openness. There are one or two things that I would like to move through logically before I open the meeting to questions from my Colleagues.
Am I correct in saying that through your position as chairman of Harland & Wolff you are also on the board of the parent company in Oslo?

Sir David Fell: It did not come around that way. I was invited to join the board of the parent company in 1999 and I have been on the board of the parent company since then. It was only last year that I was invited to become chairman of Harland & Wolff and of the two property companies in Belfast.

The Deputy Chairperson: Mr Olsen is a substantial shareholder. You said that there were a number of shareholders, but his holdings are at such a level that he is the company, is he not?

Sir David Fell: I would not put it that way. Fred.Olsen Energy (FOE), the public company trading on the Norwegian stock exchange, owns 92% of Harland & Wolff. You need to ask what the shareholding of FOE is. That contains shareholdings by two large Norwegian companies called Ganger Rolf ASA and AS Bonheur, which make up a small majority of the shareholding. The rest is traded. Ganger Rolf ASA and AS Bonheur are owned by other companies in which the Fred. Olsen family has significant investments. However, there is a dilution of that all the way through. You cannot simply say that Fred. Olsen owns Harland & Wolff. There are significant minority shareholdings in all of the companies that I have mentioned.

The Deputy Chairperson: I am slightly confused. The fact that there was a problem became publicly known at the beginning of March. I cannot fully understand why it came so suddenly. You must have had some idea, given that the orders were not coming through, that a crisis was looming. Most companies here know when they are heading for choppy waters. Why was the issue not brought up early enough to allow for proper discussion?
There is a definite feeling, certainly from the newspaper reports and that is obviously what most of us have to go on here, that we are nearly looking at a force majeure here, where out of the trap come Harland waving saying, "you have three weeks to sort this out." If one was being uncharitable, which of course I am not, it is an election year, the two Ministers concerned in this are both East Belfast MPs and MLAs, and if one was being, which I am not, uncharitable, this sudden appearance of this issue needing to be solved in three weeks and going to two people who have clearly got a difficulty with this. I wonder why this did not arise earlier with time to discuss it, to come to the Committee, as you are doing and is very welcome now. But time here is not on our side, I dislike the uncomfortable feeling, I have to say, talking generally around the Assembly as to why all of this has come out now with no time to solve it.

Sir David Fell: I fully understand. You are looking at it from one perspective; can I give you our perspective? I suspect I will not be able to fully allay your fears, I know there is always going to be suspicion of the nature you have outlined. From our perspective, as from September 11 last year, we were chasing orders. We had a high expectation that one, and possibly two, of these orders would come to fruition. By the end of September it became clear that that was not going to be the case. While we went on looking for orders, we also resolved at that time to say "what sort of future can we make for Harland & Wolff? Is there a future at all?" Actually, the easiest thing for Olsen to do is to say, "I have tried very hard." Let me say that I believe that Fred Olsen and his group of companies have tried very hard. They have brought a vast amount of work into Belfast, and they have brought a lot of orders into Harland & Wolff. They have paid a lot of taxes, and the payroll figures are high. We have calculated, just for the record, that over the last 12 years the Olsen group of companies have brought something like £600 million into Belfast in total. Against that they have received approximately £100 million by way of support from Government through the shipbuilding subsidies, which have gone, as have all European shipbuilding subsidies. We think that it is a very significant net plus. Even having done that, as I say, the easy thing for them to do at the moment is to simply shut up shop and walk away from Harland & Wolff, but they have not done that.
In October we decided that we would bring in consultants to advise us on whether we did have a future and if we had a future, what it might look like. The consultants reported to us in December. Based on the consultant's report, we then spent most of January constructing a business plan. We spent time, once we had the business plan in place, discussing with our parent company whether there was any basis upon which we could persuade them to put more money into the company. When it became clear that the only option was for the parent company to put money into the company if it was properly secured, we came up with a property arrangement. That was signed off by the parent company in the middle of February, and we put our proposals to the two Ministers the week after that on 25 February. I was conscious of the politics that you have just outlined Chairman, and how it was an unfortunate turn of events that the two Ministers who had the key role in all of this had a constituency interest. For that reason I am very anxious to ensure that we did not put this into the public domain because I did not want the two Ministers to be bounced on it, I wanted them to have time for mature reflection and at our suggestion we agreed that we would not publicise the meeting on 25 February so that the Ministers would have time to consider it. Northern Ireland being what it is, somebody eventually got hold of the story, although I am very pleased to say that it was two and a half weeks later that they got hold of the story. I think that is quite a tribute.
During that time we had briefed some other people including the Shipyard's Trade Unions let me say, and we did that with the agreement of both Ministers, because I thought it was important that the men who were most affected by all of this were put in the picture at an early stage. It obviously gave them some headaches as well because they were going to loose some jobs in the process. In the end as you will have heard from their public statements they have supported the concept that we have put forward.
When the story did break I was anxious still to play it down to give the Ministers time but I was asked if I could give an interview and it was clear that the interviewer - Peter Harbinson - spoke to him, the interviewer in the BBC had all of the facts and therefore for me to fail to give an interview was to risk the possibility that a less than accurate version of it would get into the public domain. So I consulted with Sir Reg's Office again through Peter and asked them whether they had any difficulty about me giving that interview and they said they had no difficulty. That is when it came into the public domain.
So I have saw it as far as possible to protect the Ministers from public pressure and it was specifically because I was conscious of the sort of political pressures that you are outlining that I did that. You could argue that we should have done this a year ago and if you did that all I could say to you was, a year ago we thought we had an ongoing business where we could get orders.
I have talked you through the sequence to explain why it took so long but it did take well into February before we had anything to put to Ministers. When we put something to Ministers of course we were not going to them and saying "Look here is a half baked business plan would the IDB ever mind funding it?". What we said to them is "Here is a plan which will not require a penny of Government money. Our parent company is willing to fund it provided you can put in place an arrangement where we can sell at open market value a renegotiated lease". That was the nature of the deal.
The Deputy Chairperson: You mentioned that your potential Global costs of the court case were tied up in the £20 million. What is the split between the actual money that is coming to the Shipyard and what you have set aside for the Global costs?

Sir David Fell: Can I leave that until the private session?

The Deputy Chairperson: Yes.
The next one is, there is £20 million lets say coming into the company from the parent company. How is that to be ring-fenced because technically if FOE owns 92% of the shares and it is then promptly giving this money in and then it is decided to give a rather handsome dividend this year and the £20 million goes out to the shareholders, we are actually no better off in terms of building this new company, if you like. So how do we make absolutely dead cert that this money that is coming in is going exactly where it is intended to go?

Sir David Fell: First of all, it is definitely an issue that I would want addressed upfront. I want everyone to be satisfied that this is properly addressed before this deal is consummated because if it is not, the suspicion that I know is around is going to remain and we have a lesser chance of success. So I want it addressed.
As I currently envisage it, it works in two ways. First of all the parent company is not simply handing money over by way of new equity. The parent company is making a purchase. The parent company is buying the lease. So the money that it has to find from its own resources for the purchase of the lease goes straight into Harland and Wolff Group. Once it goes into Harland and Wolff Group then it is incumbent upon the directors of Harland and Wolff Group to ensure that it is properly spent.
The directors of the Harland and Wolff Group are governed by UK and Northern Ireland company law and it is incumbent upon them to pursue their fiduciary duty under the law. To give the sort of dividend that you are fearing would be inconsistent with their legal fiduciary duties. So in a sense you have some comfort from your reliance on the directors of Harland and Wolff Group acting legally and fulfilling their fiduciary duty under the law.

The Deputy Chairperson: I understand from the papers that there is some confusion over job losses in that there seems to be a suggestion that, even were the yard to close, such is the expertise in different areas that the jobs would not be lost. For example, on the technical services, clearly that group of 100 or so is not going to lose their jobs. What studies have you done, and what is the final figure that if under the two options of the restructured yard and closing, what level of job losses in reality is there rather than in theory would there be?

Sir David Fell: At present before the round of redundancies that we had to announce last week which will not take effect until the end of June, we have 530 core staff and 440 temporary people who are brought in to do specific one-off tasks in relation to the ro-ro ships and move out again.

The Deputy Chairperson: Are they mainly English and Scottish?

Sir David Fell: There is a mixture - some from Great Britain and some from Northern Ireland.

The Deputy Chairperson: Could you give us a rough percentage?

Sir David Fell: I cannot give you that now, but will supply it to you afterwards.

Mr Harbinson It varies from time to time depending on what tasks are being performed.

Sir David Fell: It would be wrong to give you a figure now of the top of my head. The 530 of the core are Northern Ireland staff and the 440 are a mixture of Great Britain and Northern Ireland on temporary work.
The new business plan would see the 530 shrink by 150 and then move up again by 50 to 430 over the transition period. If you look at the middle of next year in our business plan, it shows 430 of the 530 still employed. In addition to that 430 we believe that we will have a continuing need for temporaries and our estimate of that for the middle of next year is 250. So we would have a total of 680 people employed in the middle of next year. It could be more depending on the work that we get, but that is what the business plan says.

The Deputy Chairperson: In broad terms we are looking at 100 job losses?

Sir David Fell: It is 144 down in the first instance and 44 up again, so 100 net. You asked a second part to that question in that even if it closed, could part of it stay. Probably the only part of it that could stay would be the technical services side which employs 75 people. There are mixed views as to whether that company could have a future if it was wholly divorced from the ship builder because it derives part of its skills from being onsite with the shipbuilder. It has developed a lot of expertise and reputation and there are even examples elsewhere in the world where a technical services company like this did remain as the only part of a shipyard that closed. There is one example in Norway where they moved through that phase and the technical services people not only were successful in their own right, but they re-opened the shipyard.
The Deputy Chairperson: Hypothetically, if this goes to the wall, for example, if it is not possible to get this plan up and running and leaving aside the job loss problem, presumably Fred Olsen Industries is left with a lot of land and empty sheds that is not much use for him, given the £600 million he has put into it, so there is an interest in the parent company to rescue something out of this. The concern that has been in the newspapers that PWC have found that the business case was a bit rocky.
If that business case is clearly not going to be successful, ie. if this reduced shipyard is not going to be a complete guaranteed flyer way into the future, it is possible having come to the arrangement that was discussed here, that we are actually sitting here in four or five years time no better off than we are at the moment. But having freed up a whole chunk of land here which will be of benefit to the parent company which is technically 50% one would argue if you listened to those who look at these things, an enormously successful titanic development here. This is likely to take off with lots of jobs, lots of wealth generated from it and obviously the company has got a slice of that action here. If then the rest of it turns out to crash, we would be back here with the same problem in four or five years time trying to find some way forward. Have you given any thought or discussion to this possibility. Given the history that we have had recently with this whole area, and as you know this Committee spent at least two years looking at the port of Belfast and we have spoken to you before on a number of occasions about different areas of this. Suppose we bite the bullet at this point and say right, the future of shipbuilding, your projections here are not too healthy. However the projections for economic development and regeneration of this entire area of the port of Belfast are such that potentially there is 5,000 jobs in here, potentially we are looking at sunrise industries that will take off and generate enormous wealth. Is there a case and have you looked at in saying although it may be painful you can ameliorate that. You can retrain staff into these new industries for those who wish to leave, you can have a comfortable severance arrangements because potentially the growth in Harland & Wolff and its Belfast operations on the regeneration side, one could argue would far outweigh what you might gain out of pottering around building windmills or whatever. I am just wondering what discussions have you had over a slightly bolder step here and facing a bit of pain now but for enormous gain for everybody, for Belfast, for you, for the Harbour Commissioners and indeed in the long term for the staff of guaranteed jobs not coming back to this crisis every few years. Because on another level if this is rescued now but crashes in four years time there is a knock-on effect to the image of Northern Ireland because the image of this and indeed the image of Harlands is of a company constantly in crisis. It affects you as a company and your street cred across the world, one could argue it is perhaps a factor in getting orders. Presumably you do not want this whole thing to pile into the ground in five years time with your reputation suffering. In our terms it is the reputation of Northern Ireland because here again people, do not go to Northern Ireland because everybody keeps falling into the water. I have laboured that slightly but it is actually an important point for the Committee as to where in fact all this is going. Whether it has been properly thought through or whether we are sticking a plaster on gangrene when what we should be doing is chopping it out making a fresh leg and the whole thing then is not a problem down the line.

Sir David Fell: It is an interesting point you make and I understand all your points let me say and I see exactly where you are coming from. In a sense I am the wrong person to ask that question to because I came into the job of being chairman of Harland & Wolff somewhat reluctantly. I was reluctant to take it on maybe for emotional reasons, both my grandfathers worked in the yard, three of my uncles, my wife's father worked in the yard. It has a long tradition in Belfast but it happens to have had a long tradition in my family as well. I was not keen to be seen as the Belfast man who came in to close the yard, I do not want to go down in history with that sooubriquet.
If I was to go to the workforce today and say to them the Deputy Chairman of the DRD Committee has come up with a better idea which is that we close the yard now and we just develop the land, I do not know how I could put that to them frankly. They are the ones who have most at stake in a sense.

The Deputy Chairperson: I am sorry, I am not suggesting - what I am saying to you is that, have you had discussions within the company to examine whether in fact the company and indeed the workforce, because if you can produce 5,000 jobs for East Belfast I can tell you now nobody will worry about whether you are the man that closed the shipyard or the company closed the shipyard because you are actually generating more wealth, more jobs and rather than overseeing a decline.

Sir David Fell: To take your figure, my ambition is to create 5,000 in East Belfast and still have 1,000 in the shipyard. Is that not a better still deal?

The Deputy Chairperson: Only if the shipyard actually can be successful. According to PWC and the newspapers this business case seems to have not convinced them and what worries me is that this is a sticking plaster approach where in fact in four years time we will be sitting around this table again saying the same things.

Sir David Fell: I would like to address those points. First of all, I do not believe everything I read in the newspapers and I am sure you do not either. As I have said, to you the PWC report identifies a number of the risks in the business and we share those risks. As I said to you earlier, I am happy to address them if you want and I can come back to it. We do know there are risks in the business. There are risks in any business and I think there are maybe rather more risks in this business. What distinguishes this one though is that if this works it is private sector that is going in, it is private sector money that will be lost in the scenario which you are painting, but it would have been lost in your scenario against a background where we have given it the best possible chance of having a future. If it is lost, in my view, then we are not going to be back. You can not come back again and say 'If only we had taken only 20 acres to put the shipyard on rather than 70 acres it would have worked'. It is not going to be like that, it can not be more salami slicing. This is last chance saloon as far as I am concerned.

The Deputy Chairperson: But suppose for example Mr Olsen puts the £20 million into the regeneration of this which would give it an enormous kick-start, and again I come back to the business of if it falls apart he is left with a load of old rickety sheds. The point I am making to you is that if he is putting money in to something that is not a guaranteed venture then the same money going into a re-structured venture where everybody guaranteed gains, and I am just asking again, have you actually discussed this as a company? Have you looked at this as a company or have you just said this is not a scenario we are even looking at?

Sir David Fell: I have certainly looked at it, yes. Can I also say that even if it was 5,000 jobs it is going to take 10, 15 maybe 20 years to produce them and we are going to manage the situation between now and then. Secondly the property deal is not necessarily a cash bonanza. In the same way that the stock market can fall so property prices can fall. We have seen it with Sirocco Works in East Belfast. Sold for I think £24 million and within 18 months written down on the books of the Plc that bought it by about £7 million and they had to take the hit in that year. So property prices can fall.
Furthermore, this land has had shipbuilding on it for 160 years and we have no idea what lies beneath the soil. Whoever develops that land is not merely taking on a cash bonanza. They are taking on a risk business in the same way that you are describing the shipyard as a risk business, so the property business is a risk business. We may find hot spots, we may find environmental problems, we may find infrastructure costs, we may find of the remediation costs alone far out-weight any profit that could ever be made on this land.
So it is not a guarantee of success. It is a different risk business in the same way that ship building is a risk business. But we would like to do it nevertheless and we are actually committing the parent company to funding the development of it whatever it costs. If you say £20 million, I do not know how much it would be because of the points I have just made.
I have no doubt there will be a very, very substantial cost involved in the development of Titanic Quarter, and I have no doubt that there will be an equally high figure involved in the development of the land that we are now discussing. So, it is not, in a sense, an "either or" situation - I am offering a "both and" situation.
As I say, we will all try very hard to make Harland & Wolff succeed. I cannot give you a guarantee that it will succeed. I do not think you will find any businessman who would give you a guarantee of the future success of his business. All I can give you is best endeavours, and we will use our best endeavours to make it succeed. But supposing it fails, are we any worse off? Because we will then have embarked on the development of the land, which might generate 5,000 jobs for east Belfast, and we have tried to keep some jobs going in the meantime, and it has not cost the Government anything to keep those jobs going, because they are entirely funded by the private sector. Then you have a new issue. What do you do with the land that is left when Harland & Wolff closes? But it is a new issue at that point.
You said that, in those circumstances, there would be reputational damage. How much more would the reputational damage be, if the insolvency laws required us, at the end of next month, to close the yard in the middle of building the roll-on/roll-off vessels for the Ministry of Defence? Do we really want Northern Ireland to be labelled the place that could not even finish two roll-on/roll-off vessels for the Ministry of Defence? Can you not see the pictures on the front of the papers of those vessels being towed away from an incompetent Belfast? I certainly do not want to see that.
The plan that we have put forward ensures that those vessels will be completed, and it ensures that the yard will be given a very good prospect of making a success of its future, while, at the same time, we pursue the regeneration prospects for east Belfast, which I believe are necessary in any event, and we stand ready to play our role. We are already playing our role in Titanic Quarter. I believe that there is great merit, as it happens, in the same partners developing the area of land that would now be given up as our developing of Titanic Quarter, in the sense that the two partners are Harland & Wolff, on one side, and the port authority, on the other side. I say on the other side both in terms of the business deal and in terms of the geographical position. We have the port here and Harland & Wolff there, and everything in the middle would be managed by the two people who have most interest in it.

The Deputy Chairperson: If you stopped "metal bashing", what happens to the lease? Does it revert to Belfast Harbour Commission (BHC)? Do you forfeit the land, because the lease, I think, says that you have to actively "metal bash" on it? If you are no longer "metal bashing" on it, in theory, it comes back to BHC. Is that correct?

Sir David Fell: If we liquidate, we have no longer any interest in anything - the business, the lease or anything. As directors, we hand over to a liquidator, and there is no further involvement by the Olsen interests. The yard would close, and the property deal would lie on the table, and it would be dealt with by the liquidator in whatever way he could. I do not know what that way would be, but it would take some time.
There is one alternative scenario, and that is that we take responsibility for a managed rundown of the yard. I do not want to do it, I have to say, but we could do a managed rundown of the yard. In other words, we would accept that there is no future. We have not accepted that, but, under that scenario, we would accept that there is no future, and we would run the yard down and keep it in mothballs. We would say, "We will run it up again when the market improves". If that is the situation, then we have declared that the land continues to be available for shipbuilding and heavy industries, and the lease stays with Harland & Wolff.

The Deputy Chairperson: But, as I understand it, the lease says that you have to actively continue "metal bashing" - that you cannot mothball the yard - is that correct?

Sir David Fell: No. It does not.

Mr McCullough: Our view is that it is not a positive user clause. We are not required to use the land for that permitted user.

Sir David Fell: It restricts the land to certain uses, rather than saying, "You must use it for that purpose".

The Deputy Chairperson: Is that BHC's view of the lease?
Sir David Fell: You would have to address that question to BHC.

Mr McCullough: You would have to put that question to BHC, Chairman.

The Deputy Chairperson: OK.

Mr Ervine: At this point I must declare an interest, Chairman. I am a member of the Transport and General Workers' Union - a union de-recognised by Harland & Wolff. It seems that there was a comment made earlier about the lack of productivity of certain elements of the workforce. As I understand it, the workforce has done every single thing that management has asked of them over the years in terms of flexibility. We are told that, if we were paid the proper price for the Global Marine ships, Harland & Wolff would have been in profit for that job.
This rather suggests that the £130 million that is absent is not absent because of the lack of productivity of its workforce. Also Fred Olsen Energy and indeed yourselves are not matched with being asked for £19 million against £130 million you gave away to an American company, £130m that you gave away. It was not the low worker in the shipyard created the clauses between Global and Harland & Wolff, it was management. It is the same management who effectively were selling the theory of Titanic Quarter as a bail out and people like me supported it. People like me supported it on the basis that there was a capacity for both to function. The development of our waterway area, which is happening in many cities, and the continuum of what is a traditional and very valuable industry. It is very valuable if it is all you know and very valuable if it pays your mortgage. It seems to me that we are back again.
I think the answer why you were not back last year for the issue because you know yourselves it was too dam close to the first one. I have to say that I am upset and angry with the Olsen Group of companies. They brought in £800 million or £700 million or invested, well there was a hell of a lot of investment prior to them coming in by the people of this society and the Government. Only the other week we have had to make arrangements to make sure that the walking dead can achieve payments through the Courts for profit that was made on the same land. The people of Northern Ireland through Government have been picking up the pieces of it for quite some time in terms of the shipyard. It is almost be a fait accompli; politicians will be responsible for the closure of the yard if they do not go along with this deal. It comes now rather than coming previously, when one could have sat and weighed it up.
One of the comments that struck me as perfectly legitimate from a businessman's point of view when it said to us that it would to be stupid for a politician to think like that, it has to make sense to the company shareholders. Who are my shareholders, what has got to make sense to my shareholders? That Olsen when asked to put £19 million in to develop what will be successful, although with some risks wants certainty, what do we get? We get a piece of land that sits facing us with no red or blue ink around it that will go the next time, or another half the next time.
There are two major problems in that. Firstly, and you said so yourself Sir David and you have been around a few corners and I would wish that none of you would take what I say personally, you have a PR man, a Chairman who has direct involvement with ship building which began a year ago and two gentlemen who deal with property development. There is not one person here from the manufacturing side. It that is not a weighted group of people coming at us I do not know.
My final summary would be that I feel blackmailed. You made the point yourself that you realise that there will be lots of opinions and not all of them healthy, I feel bounced. I feel bounced and angry because we are talking about saving 430 jobs. It used to be 20,000. Alright, there are changes in the world, but I revert back to the Titanic Quarter circumstances and how the debacle by management created the conditions. One would assume accidentally, that that placed the shipyard on its uppers, and unless there was some kind of copper-fastened benefit to the parent company vis-à-vis the Titanic Quarter leases, the parent company might lose interest and walk away. The Hansard will confirm, but I think you said pretty much the same, that it was an option for them that they might lose faith and walk away.
I am, like my two Ministerial Colleagues, an MLA for East Belfast. As this plan sits, it would not last two minutes with me - as it sits. I have no faith, as I imagine the people of Northern Ireland - again, it is not meant to be personal, to you as individuals, I am talking about a company that has failed absolutely miserably, with huge resources. Fred Olsen has not planted a ship in that yard in a long time. Fred Olsen was having ships built in other places. We know that that is the case. Fred Olsen would have no ships built in other places. We could have had an order, maybe, that would have said, well at least it gives us a bit of time to think about it. On the question of an order, £19 million, if somebody said to you, there are two roll-on/roll-off ferries I would like you to build, and of course they were not from within the United Kingdom, or were not a Ministry of Defence, how much would we have to put down in the banks in order to facilitate the signing of contracts. Don't we have to lodge money, we do not have to underwrite stuff.

Sir David Fell: It depends on the nature of the contract. It can be asked for, you are quite right.

Mr Ervine: Yes, it can be asked for. If it was asked for it might be all of the £19 million.

Sir David Fell: I do not think so. It depends on the order and it depends on the contract.

Mr Ervine: I think in the case of Global Marine it was an absolutely huge amount of money. So if we were to go for a specialist type, we might be asked for a huge amount of money that would have to be lodged in a bank, and that does us no favours, but simply is an insurance against the fact that perhaps you fold or are incapable of meeting deadlines and things like that. That is likely to factor into the £19 million. All right, let us think of it as a small order, but it has been asked for in the past, and it is asked for of many shipyards. Where would that factor in if there was to be an order for a ship?
Sir David Fell: I do not know where to start.
The Deputy Chairperson: I am conscious that we have overrun our time by about half an hour, so if you could be relatively brief, if that is possible?

Sir David Fell: There is an awful lot to answer there. I will start with an explanation of the nature of the team here today. It was our understanding that this Committee's primary interest was in the harbour lands, reflecting the DRD Department's interest. As a result of that, we assumed that you would be talking to us about that aspect of it, rather than about shipbuilding, though I am more than happy to get a different team to talk about shipbuilding, if that is what you want to talk about. That is why the team is of that nature. It is not that the Harland & Wolff management are hiding in Queen 's Island. Of the four senior people in the yard, one of them is at Queen's Island today but somebody has to run the place, and the other three are out of Northern Ireland at the moment, pursuing business for the company. I happen to think that that is also important, but that is why they are not here.
As I said, Mr Ervine, I only became chairman of the company just exactly a year ago, and it is difficult for me to answer all of the criticisms you have made of Harland and Wolff management. I think, from all that I know, it is unfair to say that £130 million was given away. Harland & Wolff took those orders with a requirement in the original order for 14,000 tonnes of steel. In the course of building the ships, Global changed their technical specifications in a whole variety of ways, which resulted in the delivered weight of the ships not being 14,000 tonnes but 21,000 tonnes. We did that at the owner's request.

Mr Ervine: Can I interject just to say that they have done it twice before. Once in France and once in the United States with the effect that both yards closed. So the intelligence was not good in Harland and Wolff management. Secondly, why did they not get a contract signed for it?

Sir David Fell: They had a contract signed before and they had a detailed contract signed for, a tome, a huge tome of a contract. Global failed to meet up to their requirements under that contract and it is because of that that we have been pursuing Global for the balance of the amount of money. The fact that Global were willing to produce £64 million to enable the vessels to be completed I think demonstrates that Global recognised the fault was not in Harland and Wolff's side otherwise they would not have put that money up.
Furthermore, when the second ship was completed, and completed I believe in a very satisfactory way, all the reports we have from where those ships are operating suggest that they are operating in a very efficient manner. The present owners are delighted with their functioning and there is a further tribute, David, to the Harland and Wolff workforce if you want.

Mr Ervine: Can I clarify. I am certainly not on the side of Global, no way. What I am merely making the point is, that it was not tied down tight enough, that Global were able to walk away as they had done in France and they had done in the United States with the effect that they almost closed three yards rather than two.

Sir David Fell: You say it was not tied down tight enough. Global, when that second ship was completed, stole that ship. They physically went on to the ship and took it away. We believe that contractually they were wrong to do so. We took them to court and we lost. We appealed and we won. The appeal confirmed that our version of the contract was what the law was holding up. It was not the contract that was at fault, it was Global that were at fault and they paid us as a result, £24 million. So do not simply say there was no contract. Do not say the contract did not favour Harland and Wolff. Simply accept that Global - I have no reason to doubt your version of their reputation - Global behaved I thought appalling towards Harland and Wolff, towards Northern Ireland Plc, call it what you like, and we are still pursuing them.
As I have said, on the one case that we have pursued them we won the case, under the contract. So there was a contract to work on.
You said you wanted to avoid a fait accompli, this is not a fait accompli which is why we are here today. I would have been pilloried for going through all of this and announcing it in three weeks time. I have not done that.
You said that this business plan would not last two minutes with you. I want this business plan to succeed and if you have specific elements that you want me to address to make it workable then I am happy to consider them. I am not sure what part of it you think is not going to succeed but I am more than happy to address the specific points in the business plan that you think are not right.
I am not sure you want me to go much further than that.

The Deputy Chairperson: Is everybody happy. Any more particular questions?

Mr McNamee: Thank you, Chairman. You said at the outset that it was quite complicated. If I could clarify exactly in relation to the renegotiated lease. My understanding as I have listened is that Harland and Wolff are proposing to renegotiate a lease of 75 acres -

Mr David Fell: Or there abouts.

Mr McNamee: Or there about, with the Harbour Commissioners and in doing so remove the restrictive covenant, on the usage of the lands which is presently restricted to shipbuilding. The currrent lease extends to the year 2114 and are these renegotiations, are they solely dealing with the removal of the restricted covenant for the use of those grounds or is it also involving suspension of the actual term of the lease itself?

Sir David Fell: So far our discussions with the Harbour Commissioners, Mr McNamee, have only touched upon the removal of the restrictive covenant. There is a difference between this and the Titanic Quarter. The Titanic Quarter lease terminates 2019, this one goes on to 2114, it is 112 years or thereabouts. Most people who were interested in developing property would be looking for a minimum of 125 maybe 200 years. The way we dealt with that in relation to Titanic Quarter was that we did not alter the period of the lease, it still runs only to 2019. Now if we were to leave it at that no developer would go onto the land but we have a separate agreement and it is publicly know and I am not telling any secrets, we have a separate agreement with the Harbour Commissioners under which it is agreed that when planning permission is given for any plot on Titanic Quarter the lease will then be extended according to the usage envisaged for that plot. It would be different usage for housing for example than it would be for industry.

Mr McNamee: Thank you for that bit. To carry on, if the lease is renegotiated that will give an additional value to the property in terms of its potential use which you are saying is £40 million. Is that my understanding and the parent company are willing to pay for that improved conditions of lease? Does the parent company then assume that lease, essentially buy it from Harland & Wolff and the Harbour Commissioners for the sum of £40 million. Could you clarify for me, the money is being paid, to who it is being paid and to who then actually retains leases at Harland or the parent company?

Sir David Fell: There are two aspects to that I want to address. The first is that we are going to the Harbour Commissioners and saying to them would you be willing to remove the restrictive covenant in the lease. They are commercial as well and they recognise that in removing the restrictive covenant in the lease that adds value to the lease and they are saying well there has to be a quid quo pro for us. I do not know whether you would regard the Harbour Commissioners as representing part of the public interest in this, I assume you would but they are saying that in the public interest there has to be something for us in this and we are negotiating at the moment what that something is, whether it is 60%, 50%, 40% or whatever. So almost all of our discussions with the Harbour Commissioners to date have been around that percentage. If it was 50% and the land was valued at £40 million then the Harland & Wolff interest in the land would be £20 million. Harland & Wolff leases the land from Titanic Properties Ltd of which I am chairman and Titanic Properties Ltd is owned by FOE. So the transaction would be that Harland & Wolff would offer up its lease to Titanic Properties Ltd against an assurance that whatever money came from FOE for the lease would go in its entirety into Harland & Wolff, nothing would be lost along the way. So the money comes into Harland & Wolff to be managed by Harland & Wolff. The lease would then reside where it has resided with Titanic Properties Ltd and that lease is a lease from the landlord who are the Harbour Commissioners to Titanic Properties Ltd. Is that helpful?

Mr McNamee: Yes that clarifies it for me but it does raise the question that the lease is for use of that particular part of the property which use was for shipbuilding and engineering. Is the £40 million a reasonable valuation to improve that lease for broader development purposes to the year 2114. Is it a reasonable valuation of the added values of that lease? Now maybe based on the valuation of the property itself, I think you referred to £60 million, maybe not. Your referred it to £40 million as the percentage of the value of the property. That is the value of the property today but the lease extends to the year 2114. Is that a reasonable valuation?

Sir David Fell Two points again. One, I said under £40 million. I did not say £40 million. I said under £40 million. Just to clarify that because these figures tend to get embedded in the public mind. Secondly, I am in no position - in fact, nobody at this table is in a position to make those judgements. There are people who spend their professional lives evaluating property, and we have been to four. They are all independent of Harland and Wolff. They are all independent of Fred. Olsen Energy. They trade on their reputation. We would depend on the evaluation which they have given us. I should say that they are not all exactly the same, but they are all in broadly the same ballpark.
Mr Savage: Chairman, there are a couple or three things that I just want to ask Sir David on. Sir David, I sympathise with you having to take over a year ago because I think an awful lot of this filters down to bad management. I know if I done my business the same way, and Global Marine or whoever it likes takes me to the cleaners, I doubt I would have to fall by the wayside. I do not think there is much point in me coming back to Government and saying "look, this has happened and that has happened".
But I certainly think that a bit more research should have been put into this before they got away with it. Now it would take that much money to take them to court, you said yourself it would hardly be a viable operation. You did say that the ship repair and the ship fitting out, and the windmills off-shore. I can tell you this. Windmills off-shore - there would be a big question mark round that business because I know for a fact that there is one country at the present time where it is costing that much to produce power from the windmills that they are all sitting now doing nothing.
But could I, Chairman, ask if this here is a new base? We have briefly touched on it. If this 75 acres saves Harland and Wolff now, the shipyard, what assurances have we, or has you, that we are going to get more orders in? We are living a very cruel world now, and its very hard to compete with, as you mentioned yourself again, Korea and those other places. Are we going in for niche markets?

Sir David Fell: I cannot give you any guarantee. What I can do, and what we did for PricewaterhouseCoopers when they did the business assessment - we gave them the state of play on a number of orders that we are chasing at the moment. One of them is very close to fruition. We may not get it because of the uncertainty surrounding the yard. It is almost ready to be placed. If we did not have the uncertainty surrounding the yard then I think we would be well placed. We would certainly get in the last two anyway. Beyond that there are others being developed - some with quite a reasonably high expectation of success, others less so. Mr Savage, you know that no businessman can say to you, hand on heart, "I know for sure that I will have £X million of orders this time next year". We are in the risk business. If you are looking for a guarantee from me that we will have X or Y orders for ships, I cannot give you that. I do not think anybody could.
All I can say is we will go out and do our damnedest to get new orders. We will work as hard as anybody can with the full co-operation of the workforce which has been pledged to make this business a success. But if you ask me for a guarantee I cannot give you that. I can only repeat what I have said earlier. But if it fails, it is not Government money that is going into it. It is a private sector decision to invest and it will be private sector money that is lost, not Government money.
As I said again, I do not think that this can be salami sliced. I know Mr Ervine's concern that this is just again, and again, and again. I think it would be very difficult for me to come back and sit round this table with any credibility in a year's time or two years' time and give you a similar story. I do not think I would do it, frankly. I think I would have concluded the game as off by that stage, for me personally. I am sorry I cannot give you a guarantee. There are risks in the business. You have identified some of them. We cannot be certain we would get the orders. We cannot be certain that we will put the joint venture together on windmills. We have done an enormous amount of work on market research on both windmills and on the shipbuilding side.
We have looked at whether there is enough cash in the business and there was query by Pricewaterhouse as to the adequacy of that, we are addressing that. However, we have built in £5 million cushion of working capital in the business. We think we have identified all the risks and we believe that we will have to address the risks - I do not know that anybody takes any comfort from it or not, some at this table will not - but I am also quite clear that if this business is to succeed there will have to be management changes in Harland & Wolff as well.

Mr Hay: I think we are all about securing the future. The uncertainty that has been surrounding the yard for quite a while has created bigger problems in the longer-term. We all need to be reassured and we all need to try and do whatever we can to make this deal doable in whatever way. As long as we are not back here two or three years down the road looking at another crisis.
I think this is a last ditch saloon and I think we all have to try and get to a point, whether the deal is doable or not and that is what we are all about.
I just feel that in the last number of years the uncertainties surrounding the yard has done the yard far more damage than what any other issue has done. The off-spin this has economically and financially for East Belfast and the rest of the province has been a disaster. It has now come to a point either this deal is doable or not and we move on.

Mr McFarland Has the Ministers indicated or have you knowledge Sir David of when the Department will be coming back to you with clear decisions which is important for us as a Committee. We need to know exactly how we want to move this on and what this Committee needs to be doing to try and move it on.

Sir David Fell: I appreciate your comments. The last question is one that I would like to answer in private session if I may.

20 March 2002 (part ii) / Menu / 10 April 2002