§ Mr. Speaker
I suggest that we take the two Schemes on the aluminium industry together, if the House has no objection.
§ Mr. Speaker
This is a matter for the House. In view of what has been said, they will be taken separately.
§ 10.13 p.m.
§ The Minister of State, Board of Trade (Mr. Edmund Dell)
I beg to move,That the Aluminium Industry (Invergordon Project) Scheme, 1968, a draft of which was laid before this House on 6th November, be approved.I hope that it will be agreeable to the House if I introduce the projects generally, although I am prepared, of course, with the permission of the House, to answer questions separately on the two Schemes.
With these Schemes we are launching what is, in effect, a new industry in the United Kingdom. Although the United Kingdom was among the first countries to develop aluminium reduction plants, when two small smelters were built near Fort William around the turn of the century, primary aluminium smelting has not been developed any further in this country. The main reason for this lies in the manufacturing process, which requires large and constant supplies of electricity, and power costs in the United Kingdom were too high. Until now, the pattern of world production has been to erect smelters close to cheap sources of power.
§ Mr. Speaker
Order. I hope that the hon. Member will help me and that he will not open the debate too wide. We are not debating the whole of the aluminium industry. We are debating two Schemes.
§ Mr. Dell
I agree, Mr. Speaker, but it is necessary to give a few words of background because it is part of the argument for these projects that the pattern of world production of aluminium is changing. Unless you permit me to explain that, the House will lack useful information 1436 Which justifies the projects being considered.
I was saying that, until now, the pattern of world production has been to erect smelters close to cheap sources of power, primarily hydro-electric power, rather than to centres of consumption. However, with the development of cheap bulk handling of raw materials and new, cheaper methods of generating power, particularly nuclear power, it is becoming more competitive to produce aluminium close to the centres of consumption, thus incidentally reducing transport costs on the unwrought aluminium itself. Thus the key to the expansion of aluminium production in this country was the price of electricity.
The Government, therefore, decided—and this was announced in October, 1967—that in selected cases, where it was considered to be in the national interest to supply a new, or possibly to avoid the loss of an existing, very large demand for electricity arising at one place for a particular industrial development, they would authorise the generating boards to negotiate special contracts for long-term supply. It was envisaged that, under such power contracts, the charges for power supplied would be determined by reference to the capital and operating costs of the most advanced generating capacity currently being installed, and that to secure this benefit the consumer would have to enter into a firm, long-term contract, and would be tied to the specified capacity for the lifetime of the contract. The Government authorised contracts of this kind to be negotiated to create new production capacity in the primary aluminium industry.
The Government invited proposals from a number of aluminium companies based on arrangements of this kind. These proposals were then evaluated by the Industrial Reorganisation Corporation at the request of the Government, and I should like to pay tribute to the way in which the Corporation tackled this job. With the benefit of the advice received from the I.R.C. the Board of Trade carried out separate and individual negotiations with the companies. These negotiations have been successfully concluded and the results of the negotiations are set out in the While Paper.
In the course of the negotiations we had to consider very carefully whether 1437 the companies could provide from their own resources or by commercial borrowing the very large sums of money required for the capital contributions to the generating boards under the special power contracts. We are satisfied that the two companies concerned could not be expected to find these sums themselves, for the two reasons set out in paragraph 16 of the White Paper, Cmnd. 3819.
§ Mr. Nicholas Ridley (Cirencester and Tewkesbury)
Could the hon. Gentleman say why it is that the two companies have had to pay this contribution at all to the generating boards? Why did they not get electricity without a capital contribution, like any other large user?
§ Mr. Dell
It is because of the nature of the special electricity contract which was worked out by the Government and the principles of which were announced in October, 1967, This has advantages from the point of view of the Government, and it has proved in negotiations acceptable to the two companies. The advantages are, of course, in the capital cost which, in the case of nuclear generation, is a large proportion of the total costs. This is paid as a separate sum and, once paid, is no longer subject to escalation, which the companies have tried to avoid.
§ Sir Keith Joseph (Leeds, North-East)
Did the hon. Gentleman refer to paragraph 16 of the White Paper? Paragraph 16 does not seem to contain any reasons.
§ Mr. Dell
I am sorry. I should have said paragraph 14.1 apologise. We therefore decided that it was appropriate for the Government to lend to the British Aluminium Company and to Anglesey Aluminium Metal the sums of up to £30 million and £33 million respectively, equal to their own capital contributions to the generating boards. Without Government loans of this kind we are satisfied that these two plants could not go ahead. Whether each company will need to draw the whole of the sum provided for in its agreement will depend upon the ultimate capital costs of the power station concerned and on the final proportion of the output of the station that the company uses.
Part of the loans will need to be advanced to the companies very shortly. 1438 Provision will be sought by way of supplementary estimate for those payments due during the current financial year. In the meantime, they will be made from the Civil Contingencies Fund.
These capital costs, together with the capital costs of the reduction plants, add up to a very substantial sum of money. They represent a major new investment in this country. The primary responsibility for this investment has Iain with the companies from whom the initiative came. They are taking the loans. They will be responsible for servicing them as well as for building the smelters. They have assessed the market for aluminium, the economics of producing aluminium in this country and the outlets that will exist for their aluminium once produced. Nevertheless, before making loans of this size, the Government had very carefully to weigh up the economic arguments for establishing in this country what is virtually a new industry.
We are the only major consuming country without a substantial home-based production. Our existing primary aluminium production is about 35,000 tons a year. This meets only some 10 per cent. of our present consumption. All the rest has to be imported at a cost, at today's prices, of over £70 million. At the same time, our consumption of aluminium is increasing. Over the past decade it has risen at an annual average rate of over 5 per cent. Even this rate of growth is lower than the average world increase of 10 per cent. a year. Per capita consumption of the metal in the United Kingdom is substantially lower than in North America, and, indeed, lower than in some of the more industrially advanced European countries. Looking ahead, therefore, the value of aluminium consumed in this country is bound to increase considerably above current levels. Provided, therefore, that production in this country can be competitive, there are substantial import savings to be made by producing in this country a very much larger share of our total consumption of aluminium than has been produced heretofore.
The Government and the I.R.C. went very carefully into the commercial viability of the two reduction plants to which we are making loans. The Government and the I.R.C., as well as the companies, are satisfied that these plants can stand on their own feet, and can therefore be expected to yield import savings. Including 1439 the Alcan plant, the three new plants together are expected to save imports of about £40 million a year.
It is, of course, a welcome additional fact that these plants will be constructed in development areas in Scotland and Wales and, in the case of Alcan, North-East England, that they will create employment during construction, and that there will be significant permanent employment once they are in production.
§ Sir Eric Errington (Aldershot)
Employment is an important matter, since it involves accommodation, and so on. I cannot see in the White Paper any mention of a liability to make provision for the expected extra employment at these plants.
§ Mr. Donald Anderson (Monmouth)
It is claimed by some that this sort of investment does not normally generate additional secondary employment. Do the Government accept this view?
§ Mr. Dell
Undoubtedly there will be direct employment in the plant and also a considerable contribution to employment in the service industries as a result.
I am very glad also that British contractors and engineers have secured for this country a very substantial part of the construction and engineering contracts. All this will improve our knowledge of building such plants, and should enable British construction companies to tender more successfully for the growing number of overseas contracts for the construction of aluminium smelters.
In short, the Government, having examined the facts, have come to the conclusion that aluminium smelting in this country, as now in other West European countries, can be economic, that there will be a market for its product, and that we should therefore go ahead and realise the import savings that are available. That we are going ahead does not mean that substantial imports of aluminium into this country will not continue.
1440 I propose now to deal with a number of questions which have been raised about this project both at home and abroad, some in a more critical spirit than others.
The first one is whether the special electricity contract in any way puts the interests of other consumers of electricity at risk. I should say at once that one of the factors in mind in designing the special electricity contract was that the general body of consumers should not suffer any loss. The two aluminium companies concerned will pay charges settled by reference to the costs of generation of electricity at the specified station.
§ Mr. Dell
There is provision for escalation so that, if these costs increase, they should not lead to a charge on other consumers. The contracts represent additional loads which would not otherwise be obtained. Thus, there is no loss of business to the area boards and no need for them to seek extra revenue from other consumers to meet financial objectives. Nor will there be any slowing down of the introduction of new low-cost capacity for the benefit of the general body of consumers. We are satisfied, therefore, that the interests of the general body of consumers have been protected.
An associated question is whether other major industrial consumers, for example, in the chemical industry, will be able to have similar contracts. Naturally, there have been discussions with other major industries about the terms of supply to high load factor users, but no concrete proposals have been made, outside aluminium, for electricity contracts of the type that I have described. If any such proposals are made, they will be considered, of course, against the criteria set out in the announcement of October, 1967.
§ Mr. Emery
I am sorry to press the hon. Gentleman, but he will realise that it is difficult for anyone to make an assessment until there is an announcement of what the unit cost of the electricity is to be in either of the plants. He may not be able to give an exact figure, but can he give us at least an approximation of what the unit cost of electricity is to be for these plants?
§ Mr. Dell
I cannot give the House the unit cost of electricity under these contracts. It is a confidential part of the contracts signed between the generating boards and the companies. There is nothing to stop other interested industries which are prepared to accept the terms of the special electricity contracts entering into negotiations with the generating boards if the Government give their approval, as required by the announcement of October, 1967.
I come now to the international aspects of the problem and particularly to the representations that have been made to us by the Canadian and Norwegian Governments. Let me first emphasise that, as I have already argued, no element of subsidy either from Her Majesty's Government or from other consumers is involved either in the arrangements for the supply of power or in the loans being made to the companies by the Board of Trade.
The main bone of contention has been the level of investment grants available to the smelters. On this, may I make the following points? First, the level of investment grants and of grants under the Local Employment Acts which may be made to these smelters is no different from those that would be applicable in the case of other industries investing in development areas and meeting the criteria for these grants. Many countries give special incentives to development in their equivalents of our development areas. In any case, investment grants cannot be looked at in isolation but must be considered as part of the whole United Kingdom taxation system. Nor, indeed, has E.F.T.A. found our investment grant system to be contrary to the E.F.T.A. Convention. In any case, under E.F.T.A.—and this is a point to which I will return when I consider the Norwegian Government's case—the context within which investment grants and any other 1442 aids have to be regarded is whether they result in frustration of the benefits to be expected from free trade. In our judgment, investment grants will not frustrate the benefit of E.F.T.A. in the sense laid down in Article 13 of the E.F.T.A. Convention.
The Canadian Government have expressed to us their concern about the changes that the British aluminium project will produce in the traditional pattern of supply of aluminium to this country. But changes are already taking place on a significant scale, of course. Already, Canada has become a much less significant source of supply of aluminium to this country than it has been in the past.
In 1964 Canada supplied us with about half our unwrought aluminium. In 1967 it was down to about a third. During the same period Norwegian supplies rose rapidly. Much of this change in the pattern of supply has been brought about by overseas investments by Alcan, and by arrangements for obtaining metal from Norway in exchange for alumina. For example, whereas in 1960 Alcan's production of primary aluminium was small overseas compared with its production in Canada, by 1967 production overseas by Alcan and its affiliated companies was over half its Canadian production and was rising rapidly. Indeed, it has estimated that by 1972 its overseas production will be virtually equal to its Canadian production. We welcome Alcan's investment in the United Kingdom. This country has long experience of the fact that manufacture overseas deprives one of an export market in a particular product. But, on the other hand, it creates new sources of income in the form, for example of remittances of profit. This is the common experience of all those who invest overseas.
A further factor which must, I accept, affect Canadian supply of aluminium to the United Kingdom is that as a consequence of the expansion of its production in this country the British Aluminium Company has sold its holding in the Canadian British Aluminium Company which operates the smelter in Canada and from which the British Aluminium Company at present imports a substantial part of its needs. However, arrangements have been made to dispose of the output of this smelter so 1443 that Canadian production will not be affected. Indeed, confidence in the future growth of Canadian production is shown by the fact that work has recently commenced on a 50 million dollar expansion of this Canadian smelter.
§ Mr. Speaker
Order. I wonder whether the hon. Member can help me. Is he talking about one of the two smelters under this Scheme? He can only talk about what is in the Scheme.
§ Mr. Speaker
If the hon. Member opens the Scheme as widely as this, anyone joining in the debate can speak as widely as the hon. Member is speaking.
§ Mr. Dell
May I point out that the project we are considering—Invergordon—is affected by the decision of the British Aluminium Company to sell the Canadian British Aluminium Company's smelter, which it has just done. These two facts are intimately related. I suggest that on that ground, if on no other, what I am saying is relevant to the Scheme. I have, however, only now to deal with the comments of the Norwegian Government on this project. I hope then to leave the House to debate the matter further.
§ Mr. Dell
I think that I ought to get on.
The Norwegian Government has made repeated representations both to the United Kingdom and to the E.F.T.A. Council regarding the British aluminium project. These representations have been exhaustively considered. My right hon. Friend the President of the Board of Trade has had bilateral talks with Mr. Willoch, the Norwegian Minister of Commerce and Shipping, on three separate occasions, both in London and in Oslo. There have been bilateral talks at official level. A special E.F.T.A. working party has examined our proposals in detail. Extended discussions 1444 of our proposals have taken place in the E.F.T.A. Ministerial Council and in the Standing Official Council in Geneva. Thus, there has been no lack of consultation.
We do not accept that the arrangements we propose include any feature which would be contrary to our international obligations or that we are frustrating, by this project, benefits that Norway might expect to gain from her cheap hydroelectric resources.
First, let me emphasise that E.F.T.A. is not a cartel. The import of virgin aluminium into this country is duty free from all sources, not just from E.F.T.A. sources. The people who decide the source of the major part of aluminium imports into the United Kingdom are the great international aluminium companies. Six of these are responsible for about 75 per cent. of the total free world production of primary aluminium.
§ Mr. Edward Milne (Blyth)
I am sorry to interrupt at this stage, but I cannot follow why the negotiations with E.F.T.A. and the question of the Norwegian aluminium smelting industry has anything to do with the two Schemes that come before us tonight. We have already decided the E.F.T.A. position and the question of the Norwegian aluminium industry. I understood that we were debating the question of the moneys to be devoted to the two aluminium smelting plants.
§ Mr. Speaker
I thank the hon. Member for helping me to try to convey to the Minister in charge of the Scheme what the Scheme is strictly about.
§ Mr. Dell
I am afraid that my hon. Friend is not really right. The House has so far decided nothing. The House is tonight, at last, deciding whether loans of Government money shall be made to assist in creating the aluminium smelting project in this country. Up to this point nothing has been decided. In view of the international repercussions of this project, surely the House wishes to have in mind what answer this country has to the complaints which have been made.
I was saying that the international companies plan their production and marketing on a world scale, and they control 1445 most of the aluminium fabricating capacity and thus the outlets for aluminium ingot. Nevertheless, it is our view, a view based on consultation with the companies, a view which we have repeatedly expressed to our E.F.T.A. partners, that, given the expected increase in consumption in the British market, the proposed extension of our industry will still leave room for Norwegian exports of aluminium to us to grow well above the 1967 level.
To ensure this, and to emphasise the importance that we attach to maintaining friendly relations with Norway, we persuaded British Aluminium and the Anglesey Aluminium Company to reduce the initial capacity of their smelters from 120,000 tons to 100,000 tons. Equally, we have undertaken to review the trade situation with all three companies no later than 1971 before final decisions are taken on the expansion of the plants beyond their initial capacity.
In any case there is no evidence to suggest that if these reduction plants had not been built in the United Kingdom comparable additional capacity would have been built in Norway. There is in fact much contrary evidence. There are many places in Western Europe other than Norway and the United Kingdom in which today aluminium can be smelted economically. We know that they were considered by the companies as alternatives to the United Kingdom. Had they been chosen, the aluminium smelted at them could have entered the United Kingdom duty free. Fortunately we were able to conclude agreements which brought the industry to the United Kingdom. In short, to have acceded to Norwegian representations on this point would not necessarily have benefited Norway, nor indeed would it have benefited E.F.T.A. It would only have harmed the United Kingdom.
By virtue of these Schemes under the Industrial Expansion Act we are, together with the companies, establishing what is in effect a new industry in the United Kingdom, an industry designed to meet an important and expanding market, which will bring substantial economic benefits to this country. Not least, I hope that these plants will bring a new era of prosperity to the areas in which they will be established.
§ 10.38 p.m.
§ Mr. Gordon Campbell (Moray and Nairn)
Mr. Speaker, I think you will be glad to hear that I intend to be brief.
I am sorry that the Minister has taken a considerable time, during which he has not given us very much more information than is in the White Paper and the Scheme. I deplore the fact that the Minister did not see fit to give way to some of my hon. Friends during a debate which can run for only a short time, but nevertheless saw fit to give way to one of his hon. Friends.
The Government announced these smelter proposals more than a year ago. They seem largely to have been actuated by the country's balance of payments position, and Ministers will know that during that period I have pressed the suitability of Invergordon as a site if the scheme were found to be satisfactory, to be viable, and if the Government decided to proceed with it. I have questions to ask about this complicated Scheme, but I am very glad that Invergordon was endorsed by the Government after a period of uncertainty.
The advantages of a deep water harbour, suitable local geography, and a reservoir of labour commended themselves, and such advantages were, of course, confirmed by the fact that at least two of the aluminium companies were themselves making plans for Invergordon. This should be a great stimulus for the Invergordon area and should help in promoting activity and development in the north of Scotland as a whole. But it also raises problems which need thought and care. One is that some of the best agricultural land in the area is unfortunately needed for the scheme and another concerns the labour and wages problems, which are particularly likely in the first two or three years when the project is being built.
It is not all plain sailing, as was made clear when my right hon. Friend the Leader of the Opposition visited the site in September, when I accompanied him, on a tour of North Scotland. He discussed the effects of this project with representatives of the British Aluminium Company on the spot and also with the local authorities concerned.
We want to be assured that the Government have, with the best possible advice, including that of industry, obtained the 1447 best possible future estimates of world production of and demand for aluminium. It would be a major setback for the Invergordon area if there were over-production in five or ten years, and this caused redundancy or the closing of the plant. Therefore, an assessment of viability is essential to the Scheme. Of course, somewhat similar estimates had to be made in 1961 and 1962 for the comparable project of the pulp mill in another area of the Highlands.
The loan agreement is before us in draft in the Scheme, but not the power contract. The Minister's reply to an intervention suggested that the power contract is to be confidential, but this is strange, when two clauses of it are referred to in the agreement in the Scheme. Is the whole of the rest of the contract, other than these clauses, to remain confidential? If it has to remain confidential for commercial reasons, I hope that the Government will find some means of making it clear to other industries that if they seek similar assistance and similar forms of contract, they will not be dealt with differently and will receive as fair treatment as the aluminium company in this case.
I now turn to how the loans are to be related to the power supply element—
§ Mr. Campbell
I entirely agree. This is of course the difficulty. All we have is the Government's word, given to us earlier, that the interests of other consumers from the electricity boards concerned will not be adversely affected. But we only have their word and apparently the details will not be vouchsafed—
§ The Minister of State, Scottish Office (Dr. J. Dickson Mabon)
In the national interest.
§ Mr. Campbell
It can be argued whether it is in the national interest one way or the other—whether the consumers should be able to see clearly that no extra burden falls on them. But that intervention came from the Minister of State, and as the Electricity (Scotland) Bill will be coming before us in Committee shortly, 1448 I look forward to questioning him more about the Scottish boards in the weeks ahead.
I was pointing out that the loans are related solely to the capital cost of the power supply element. At first sight it seems curious that the power element should be more than 200 miles away in Ayrshire, that it should be Hunterston B and that no part of the loan should be related to construction and investment on the site at Invergordon. The Hunterston B station is to comprise two reactors of the advanced gas-cooled type and the first, according to the board concerned, is expected to come into commission early in 1973. What is the Minister's latest estimate of the date when the smelter at Invergordon will start operations?
The agreement in the Scheme concerns the North of Scotland Hydro-Electricity Board and that board features throughout the agreement. However, Hunterston B is in the area of the South of Scotland Board and is being built by that board. I presume that this is the result of close co-operation between the two boards in Scotland, and this is to be welcomed, although the result is a complicated financial arrangement which affects not only the Board of Trade and the British Aluminium Company but also the five electricity boards in question and perhaps other parties.
Is this arrangement within the international rules and conventions? Has it been framed, to be directly related to the power element in order to keep it within these rules and conventions? If so, there should be no legitimate objection from Norway. I hope that this development at Invergordon will open opportunities in the area for further development, particularly since there are easy sea communications between Invergordon and other parts of the East of Scotland. This is an important matter, but I will not expand on it now.
I have been corresponding with Ministers about the position in the immediate future and the need to pay special care to ensure that skilled labour is not drawn away from other industries in the area, particularly in the period of perhaps two or three years, when the smelter is being built, because that could have damaging effects. This risk has occurred elsewhere in Scotland and special arrangements have had to be made to deal with the problem.
1449 One way of tackling it is by what is called "Operation Counterdrift", which the Highlands and Islands Development Board began a year or two ago. It consists of the formation of a register of persons who wish to return to the Highlands. I understand that about 7,000 names are on the list. This will be the first real test of whether "Operation Counterdrift" will work. Ministers have referred to this proposed operation when I have questioned them about the labour problems. If skilled labour can be persuaded to return to the area, instead of labour being taken from other firms in the area—firms which are already providing valuable employment—Scotland will benefit greatly. This whole operation must be thought out properly to ensure that labour is not drawn away in the way I have described.
I welcome the choice of Invergordon and believe that it is the right site. This development is regarded in the area as a great opportunity, and I am sure that the hon. Member for Ross and Cromarty (Mr. Alasdair Mackenzie) will confirm this. Hopes are high, and it is therefore all the more important that the Scheme should be soundly based, should be lasting and, if possible, should lend encouragement to further development in the area.
§ 10.50 p.m.
§ Mr. Edward Milne (Blyth)
I intervene briefly to deal with points about capital costs in the power element in the two smelter plants. I should like to touch on the points made by the Minister of State concerning the E.F.T.A. Agreement and the question of our overall aluminium production capacity in this country.
I was under the impression from a reply to an Adjournment debate, that the overall capacity originally intended in aluminium smelting in Britain was spread over three plants instead of the two then in production. In relation to the increase in aluminium production capacity, if we agree to these Schemes and provide the capital necessary, we have not only to realise the value of the aluminium smelting industry in import-saving but also to see the job potential and to see that aluminium fabricating plants as well as smelting plants are introduced to give us the job capacity which the smelting plants can provide.
1450 In answer to a Question by me, the Minister said that we were already overstocked with aluminium fabricating plants. I should like this point cleared up. Coming back to the capital cost of the power element, when the smelting plants were originally intended for Invergordon, it was not the present company that was to have the plant, but the one now situated on the Northumberland Coast. When Alcan decided to go to Invergordon, the aluminium smelter was to be powered by coal and Northumberland coal would travel to the Scottish coast to provide the plant at Invergordon with the power it needed.
If it was possible then to have coal used as the means of providing power for the Invergordon plant, I should like to know why we have now moved away from this point. My hon. Friend will probably reply that, Alcan having moved to the Northumberland coast, it is using 1 million tons of coal to fire its aluminium smelting plant there. With that decision we of course heartily agree, but if it is economical for a firm like Alcan to use coal for power capacity on the basis of introducing aluminium smelting into Britain we should need a convincing answer to the question, why is coal not being used at Invergordon, as originally intended, to defray some of the expenses?
All of us in all parts of the House welcome the introduction of the industry to Britain, not only because of the jobs which the smelting industry will provide, but because of the jobs we believe aluminium fabricating will produce. We shall need a convincing answer to the question, why Alcan at Lynemouth can get coal to power its plant and why the company now sited at Invergordon could not also use coal in view of the extreme difficulties experienced by the coal industry at the moment.
§ 10.54 p.m.
§ Mr. Alasdair Mackenzie (Ross and Cromarty)
I welcome this Scheme. I am glad to note that this brings the project a stage further. I hope that the House will pass this Motion, which will mean that the necessary finance will be provided. However, one point worries some of my constituents a little. Since there is a private contract between the Hydro-Electric Board and the British Aluminium Company, some people are under the impression that there may be 1451 a hidden subsidy element in the agreement. I am not concerned about what the unit cost is—I am greatly relieved to know that the two parties have come to terms—but am concerned about the fact that a number of communities in my constituency are not connected up so far. I should be very disappointed if the agreement meant that the supply to them was held up indefinitely. I should like an assurance on the point.
There is also the question of the inadequacy of the roads serving the area of the project. I hope that this will be taken into account and that the improvements to the roads will not be held up unduly.
The hon. Member for Moray and Nairn (Mr. Gordon Campbell) stated that hopes are high at Invergordon. This is true. An industrial project of this size in the Highlands has never been known, and great things are expected of it. It is very important that the work entailed should be proceeded with and that there should be no undue delays. People are already coming to the area. The hon. Member for Moray and Nairn referred to the population counter-drift. Many people of various skills are prepared to come back to the Highlands, and so we hope that there will be no undue delay in getting the project under way.
With those few remarks, I welcome the Minister of State's statement and hope that the Scheme will be passed.
§ 10.57 p.m.
§ Mr. Donald Anderson (Monmouth)
I wish to pose one or two questions about this controversial project. It is controversial because, though welcomed on development area and import substitution grounds, it has been assailed under the terms of the E.F.T.A. convention and on some locational grounds, some suspecting that we might be faced with a wrong decision such as was made by the Conservative Government in the late 1950s in relation to the steel industry by dividing a project between Colvilles and Llanwern, so that we may be faced, as with the steel industry, with the situation that we have too many pockets of small aluminium capacity.
My questions relate to the total additional expenditure from public funds in 1452 relation to this project and the Anglesey project, because, as the hon. Member for Honiton (Mr. Emery) has said, without the total costs we cannot get the full picture.
§ The Deputy Speaker (Mr. Sydney Irving)
Order. I remind the hon. Gentleman that we are discussing one Scheme at a time.
§ Mr. Anderson
In that case, I should like to know what total additional expenditure from public funds is expected in respect of the Invergordon project in relation, for example, to investment grants and R.E.P., and in relation to the expected necessary local infrastructure projects in terms of schools and roads, what additional investment is expected in port facilities for the import of bauxite, and whether there are any other hidden subsidies from public expenditure which are not referred to in the Scheme. For example, are there railway lines kept open in anticipation of the extra business which would not otherwise have been kept open? So that we can have the total picture, can the Minister outline the total costs rather than the £30 million loan contained in the Scheme?
§ 11.0 p.m.
§ Mr. Edward M. Taylor (Glasgow, Cathcart)
I hope that the Minister will be able to answer the two questions I ask. Hon. Members on both sides are glad to have this Invergordon Scheme because it is an exciting new development which will bring prosperity and success to a part of Scotland which needs it. My questions relate entirely to the contract for supply of electricity.
We understand the reasons why the Minister cannot go into the details of the contract price, but, even if we accept this, he is under an obligation to answer questions on vital points. It is indicated in the White Paper [Cmd. 3819] that the cost will be based on production, and we see from paragraph 10 thatA feature of such power contracts would be that the charges for power supplied under them would be determined by reference to the capital and operating costs…so we are providing these companies with a substantial sum of money which would enable them to buy a slice of Hunterston B and the costs they pay will be the actual costs of Hunterston B. This 1453 appears to be the situation. It is confirmed by paragraphs 10 and 13 of the White Paper. This means that the generality of consumers in Scotland will account for the difference, if we assume a pre-Hunterston B situation. This is something we cannot do. We are affecting the interests of other consumers, because we are depriving them of part of the benefit of Hunterston B.
§ Mr. Ridley
We are failing to pass on the benefit to other consumers because they are carrying uneconomic plant which is old-fashioned and expensive.
§ Mr. Taylor
I entirely agree. The generality will have to pay the average price of power, less the sales to Hunterston B, so we are making a preferential arrangement for this company. This is something which in principle none of us likes, but hon. Members from Scotland are prepared to make a special arrangement of this sort for a special project in special circumstances. On the other hand, we want an assurance that this will not be general practice, because if the Government were to bring forward a proposal whereby the cheapest forms of power or the cheapest new developments were to be taken away from the generality of consumers, the situation would be serious and would cause even more alarm to us.
What will be the position in the event of the costs of Hunterston B being greatly in excess of the estimate and therefore the price of the power coming out being in excess of the estimates which are considered now? The experience with Hunterston A was that the final cost of the project was greatly in excess of what was originally envisaged. What about the viability of this project if such a thing happens?
The Minister of State, Scottish Office, may take the view that, with him in charge, the possibility of anything going wrong should not even be loosely considered. But everyone is fallible. He may be so busy with other things that he will not be able to give the close scrutiny to the project that he wishes. What is likely to happen in what he sees as the unlikely event that costs will be in excess of estimates?
The Minister of State, Board of Trade mentioned the escalation clause, 1454 but we do not know the details. Is it the case that, whatever the price may be, the British Aluminium Company will pay the actual costs stemming from its slice of Hunterston B? If this is so, what will happen if it goes wrong and this affects the viability of the project?
If this is not the case and the escalation clause does not allow for the full cost, who will pay it? Will it be the taxpayer by means of writing off part of the capital of the South of Scotland Electricity Board? This will mean writing off the costs and changing the figure. The way it is done is to write off capital and change the figures. The other way would be to transfer the additional burden on to the generality of consumers by having an inflexible escalation clause which would not allow for the full economic cost of this slice of Hunterston B.
The House is entitled to an answer. So are the consumers in the South of Scotland area, particularly since, in Scotland, we have a special problem with fuel costs. As the Minister revealed on Tuesday, the cost of electricity to industrial consumers in Scotland is about 1s. in the £ more than for industrial consumers in England and Wales.
What is the basis of the escalation clause? What happens if the costings go wrong? Who pays the difference? We are entitled to answers. Most of us are happy at the prospect of this new project, but we and the consumers are entitled to clear answers to these questions, which will not require the Minister to give away details of costings.
§ 11.6 p.m.
§ Sir John Gilmour (Fife, East)
It is difficult to assess the Scheme without knowing what the cost of electricity will be. The Minister of State said that, as a result of international pressure, it had been agreed to cut down the size of the smelting plants we are setting up. If our planning operation was right, we must have been planning for the right size of smelters. If political considerations—and political considerations arose in connection with the steel industry, although I would be prepared to accept them there—result in a decision to have three separate plants and then, under international pressure, we cut down the size of each plant, the prospects are that each of them will be too small.
1455 This poses a difficult question. Which of the three should we scrap? We have not had enough information tonight to enable us to make up our minds about what the right size of the plants should be. But one place which cannot support a plant that is not of sufficient size is Invergordon, and nothing could do more harm to the Highlands than to set up a plant "out in the blue", as it were, away from the main manufacturing industries and not of sufficient size to be the most efficient aluminium smelting plant in the country. If it is not of sufficient size, it cannot succeed.
The Government must be certain that the size of these plants means that they will be economic and that they have no reservations. If they are not certain, we shall be doing the economy harm by approving the Scheme.
§ 11.9 p.m.
§ Mr. J. Bruce-Gardyne (South Angus)
I had intended to speak briefly but the speech of my hon. Friend the Member for Fife, East (Sir J. Gilmour) will enable me to be even briefer because he emphasised the point I wished to make. Of course we all welcome a project of this kind to the Highlands, although the employment directly created will be rather small. But we have to be sure that it is viable.
As my hon. Friend said, the Minister has given us little information tonight. Indeed, the only indication the hon. Gentleman gave was the ominous reminder that the size of the projects we are discussing had to be scaled down in response to representations from the Norwegians. Our understanding is that the original proposal was for individual units with outputs of at least 120,000 tons. I suspect that we would be much better off with one large plant instead of three. I do not believe that the Government can make three plants on this scale remunerative. I certainly do not believe that they can do so now that they have scaled down the size. This is a serious proposition which the Government must answer.
I know that the case of Richard Thomas and Baldwin and of Colvilles and the steel strip mill will be thrown in our faces, as the hon. Member for Monmouth (Mr. Anderson) fairly and legitimately did. I accept that. I have 1456 always regarded the split in the strip mill as one of the worst decisions taken by the Tory Government. Now I consider that the Labour Government are doing precisely the same thing all over again, only perhaps on an even graver scale by splitting into 3 instead of into 2. We need some clearer assurance from the Government that they have three projects that can be viable.
Yesterday I stressed to the Minister of State, Scottish Office, the importance of considering the views of Mr. Goode in all financial matters. I do not think that Mr. Goode would like this Instrument. I do not believe that the Government have shown that any of these projects can be viable. The Minister of State said nothing tonight to allay our doubts.
§ 11.12 p.m.
§ Mr. Peter Emery (Honiton)
Not representing a Scottish constituency, I am, perhaps, in slight disagreement with some of my hon. Friends who, as they come from Scotland, are bound to see considerable benefit for their own areas in the siting of this smelter. It was brave and courageous of them to make the criticisms they did of the division of the smelter into three parts.
I believe that the total investment that the Government and industry are making, not only at Invergordon but also at Anglesey and in the North-East, is misguided and wrong. It could well be placed in much more remunerative positions and industries for the benefit of the United Kingdom as a whole rather than the purely sectional factor of this investment in this particular industry. We have no bauxite. Our power is as expensive as power is in most places in the world. It is more expensive than it is in areas which produce aluminium. On the whole, the economy can justify this only on an import-saving or a strategic basis. In a war we would not have the bauxite, anyway; we should have to import the aluminium, so the whole industry falls. On import saving, much more could be done. Investing this money overseas would earn a greater amount than the amount of import saving achieved by this investment.
It is all very well for the Government to say that they will not give us the unit 1457 cost of the electricity because this is a commercial contract. This is their defence for not releasing the figures. In other commercial contracts, and in one in which I have an interest—let us take the case of the commercial price of North Sea gas—it was seen fit to reveal the price and it was in the national interest to do so.
I claim that it is in the national interest that this unit cost should be revealed. We cannot make a proper judgment about the economics of these claims unless we know the Government estimate of this cost. There are many rumours, but whether one takes reports from the Financial Times, the Economist, or The Times Business News, they are all below the cost of 1d. per unit—below the cost to the ordinary consumer. This is a specialised item. If the Government have seen fit to give special treatment, why is it being given to the aluminium industry? Why not to steel, to chemicals or to the production of chlorine, which is a very much greater electricity-consuming industry than aluminium?
The Government have sidestepped this issue, and unless we know what the unit cost will be we cannot make an absolute judgment. The Government ought to fulfil their obligations, so that the ordinary person can make a judgment. If they do not do so, as The Times Business News said:If the industrial users are to pay less, the domestic consumers must pay more.This is the real reason. Unless we get this figure, the Government will be branded as having attempted to push this Scheme through without giving proper information, without giving the true facts.
§ 11.17 p.m.
§ Mr. Robert Maclennan (Caithness and Sutherland)
I had not intended to speak tonight, because I thought that this Scheme would meet with almost unanimous approval on all sides of the House. It has come as something of a shock to discover, in speech after speech from the benches opposite, that the Tory Party has been attempting to ride two horses in different directions. There was at least a refreshing straightforwardness about the speech of the hon. Member for Honiton (Mr. Emery) who regards the 1458 Invergordon Scheme as misguided and wrong.
The same tribute cannot be paid to the hon. Member for Glasgow, Cathcart (Mr. Edward M. Taylor) whose remarks seemed to be directed to two different audiences. First, for the benefit of his Scottish constituency, he approves the Scheme, then for the benefit of his industrialist hearers he disapproves. He should have done a little more work in attempting to reconcile these differences before he brought his views to the House. The hon. Member for Moray and Nairn (Mr. Gordon Campbell) speaking from the Opposition Front Bench, in the most petty and trivial intervention, made it unclear whether he approved or not. His raking up of old troubles about proper land use seemed quite irrelevant.
§ Mr. Gordon Campbell
It is because I am in favour of this development and am anxious that it should be successful and viable.
§ Mr. Maclennan
What the hon. Gentleman failed to make clear was whether he regarded his objections on the ground of land use as being of such moment that the House ought to vote against the Scheme. Like his hon. Friends, he attempted to speak with more than one voice and was guilty of the usual inconsistency which one has come to expect from him and his colleagues.
This has been a thoroughly disappointing debate in view of the importance of the Measure to the Highland economy and to the development of a new and valuable import-saving industry. Perhaps the most disappointing speech was that of the hon. Member for South Angus (Mr. Bruce-Gardyne), who argued that we should be concentrating our aluminium production in larger units. But when he said that it ought to be moved south he did not say which plant we should give up. Perhaps he would care to volunteer the answer. Should it be Invergordon or Anglesey or Blyth?
§ Mr. Bruce-Gardyne
The important point is that we do not want a project at Invergordon which will be too small to be viable, which will land itself in trouble, and which may even have to be folded later. I want to see one large project, certainly in Scotland, but I would rather not have a project which was too small to be viable.
§ Mr. Maclennan
It is a relief to hear that. This is a momentous step and an example of the kind of Socialist planning which will restore the Highland economy. I have seen some of the benefits of this planning already. I hope that, with one voice at least in the Division Lobbies, the House will ensure that this Measure is given the support which it deserves.
§ 11.22 p.m.
§ Sir Keith Joseph (Leeds, North-East)
The House wants to give the Minister of State the maximum time possible for him to answer the range of questions which have been asked on this important subject. My hon. Friend the Member for Moray and Nairn (Mr. Gordon Campbell) expressed unqualified approval of the scheme from this Box and asked only questions addressed to its viability because of its importance in the area.
The hon. Member for Caithness and Sutherland (Mr. Maclennan) claimed this as an example of Socialist planning. It should be put on record that this whole series of aluminium projects stems from the enterprise of one of the most remarkable business men in this country, Sir Val Duncan, who originally put forward the Anglesey project. I will not try to discriminate between the three firms involved, as maybe others, too, conceived the idea originally, but it is to private enterprise that credit for this wealth-creating Scheme, as we all hope it will be, should be given.
I have only two questions to put to the Minister of State to supplement those put by my hon. Friends. I have given him notice of them and I hope that we shall receive a clear answer. The first concerns the cost to public funds of the Invergordon project—that is, the capital cost of the investment grant and any capital help given under the Local Employment Act. It would be going too far to ask about R.E.P., which is a continuing cost. Could he relate the cost, when it is given, to the number of permanent jobs which he expects to be provided by the Invergordon project so that we may calculate the cost to the taxpayers' fund per permanent job created?
My second question is addressed to the loan to the company involved. The Minister of State told us that there would be a Supplementary Estimate, but the Chancellor of the Exchequer was at great 1460 pains at Budget time this year to cut down the borrowing requirements from the very high level of 1967. Will the Minister of State tell us by what percentage the borrowing requirements will be increased by the loan connected with Invergordon and how soon the Supplementary Estimate is likely to be presented to the House?
§ 11.25 p.m.
§ Mr. Dell
I have a number of questions to answer and I will go through them as rapidly as possible.
I am glad that the House welcomes the project, but I am sorry that so many hon. Members opposite found it wrong for a multitude of reasons. We think that this is a great new industrial project which is right and which will bring great benefit to this country.
I am asked, when will the smelter start operations? It will be commissioned in the first half of 1971 and is expected to reach full capacity in 1972.
The hon. Gentleman the Member for Moray and Nairn (Mr. Gordon Campbell) asked me about the situation at Hunterston B, in the south of Scotland Electricity Board area in relation to the North of Scotland Hydro Electricity Board. There will be a parallel contract between the two Boards. He asked me whether the special electricity contract was within international rules. It is within international rules. It is based on the cost of the most advanced generating capacity. This provision is in accordance with international rules, and, as far as I know, no objection is being currently taken to the special electricity contract.
I was asked by my hon. Friend the Member for Blyth (Mr. Milne) as to the possibility of aluminium fabricating plants being located near the smelter. This is, of course, a matter for the commercial decision of the companies, but I am afraid that he does have to bear in mind the fact, to which he himself referred, that at the moment the existing fabricating plants operating in this country are operating far below capacity. Of course, when that capacity is reached, when new plants have to be installed, it will be a matter for the companies to decide whether it is more sensible to put these fabricating plants near the smelter or near the main markets of consumption. He asked me, too, why it was that coal could not be used for the contract 1461 which we have under discussion. I should make it clear that the National Coal Board made an approach to the two companies and the companies themselves were able to choose whether they felt they would operate by means of their own generating plant with the assistance of coal or through the special electricity contract.
There has been a great deal of criticism of the splitting of the total amount of capacity which is being put up in this country. Indeed, hon. Members opposite appeared to think this so serious a criticism of the project as to undermine its viability. I think they are entirely wrong. There is no comparison at all with the position they themselves referred to in respect of the steel mills which were split under the previous Government.
The position is this. Alcan wished to put up at this stage a plant of 60,000 tons. This they are doing, with a plant which will have a capacity on expansion of 120,000 tons, subject to the agreement we have made with E.F.T.A. regarding the 1971 review. So far as they are concerned—and they have rather more experience of this matter than, I imagine, most Members of this House—a plant of 60,000 is what they wanted. The other two companies would have preferred to put up plant for 120,000 tons, and indeed 120,000 tons would have been for them technically better. However, I must point out to hon. Gentlemen that there are no significant economies of scale, according to the technical information we have, in smelting above 120,000 tons.
The sacrifice of economies of scale, by reducing to 100,000 tons, is small, and, indeed, by current world standards, a smelter of this size is large. It is entirely wrong, I believe, for hon. Gentlemen opposite to suggest that the viability of this project is in any way imperilled by the fact that it has been split into three separate plants, rather than being, as some have suggested, in one single plant.
§ Mr. Russell Johnston (Inverness)
Can the hon. Gentleman say whether he thinks the new smelter will have any impact on the viability of the two existing smelters at Fort William and Kinlochleven?
§ Mr. Dell
It is a matter for British Aluminium, but it is our anticipation that 1462 we shall be operating just under 300,000 tons of aluminium, including those two smelters.
I am asked for information about expenditure on investment grant, on local employment grant, and other matters. The right hon. Gentleman the Member for Leeds, North-East (Sir K. Joseph) asked me about this, and my hon. Friend did, too. It has never been the practice of any Government to reveal expenditure of this kind in respect of particular companies. It was not done for investment allowances. It was not done by the previous Government for local employment grants, nor by this Government for investment grants, and I cannot give this information. It may be that the companies themselves will be prepared to give this information; that is a matter for them; but the Government have to preserve confidentiality, and this is a confidentiality which has never been breached.
It should not be beyond the ingenuity of hon. Members to come to a rough approximation of the sort of assistance that is likely to be given under these heads. The capital cost of the smelters has been published. I imagine that hon. Members could make their own estimate of how that is divided between plant and machinery on the one hand and building on the other. I should not be surprised if hon. Members could make their own calculations, and perhaps they will, but I must maintain confidentiality.
As the right hon. Gentleman knows, the scale of local employment grants is related to the amount of employment provided. My hon. Friend can work out regional employment premiums from the employment which will be provided by the Scheme. Port facilities, about which he also asked, in so far as they are necessary for the company alone will be paid for by the company. The Ministry of Transport will pay only if there is a development of general interest to importers.
The hon. Member for Glasgow, Cathcart (Mr. Edward M. Taylor) asked two questions about the electricity contract. He suggested that there was a penalty on other consumers because they were being deprived of the benefits of Hunterston B. This is an interesting matter which could be discussed at length, but I can assure him that this has been gone 1463 into with great thoroughness. The boards are required by Statute not to sacrifice the interests of other consumers. With his wide knowledge of this subject, he must realise that there is a series of counter-balancing factors, and that to determine what the British Aluminium Company should pay in order to avoid a sacrifice by other consumers is a most complex sum. This complex sum has been done, and what the British Aluminium Company will pay will not involve any sacrifice by other consumers. One counter-balancing factor is that, whereas Hunterston B now represents the most advanced technology, it will not do so in 28 years' time, and yet British Aluminium Co. will still be tied to Hunterston B.
The second question asked by the hon. Gentleman was what happens if the cost of Hunterston B escalates. I hope that he does not have too vivid dreams on this matter. The contract contains contingency provisions, and the company is responsible for escalation. The company satisfied itself in the course of long and detailed discussions with the relevant generating boards what were the possibilities, and the company has negotiated the contract and takes the risk of escalation.
The hon. Member for Honiton (Mr. Emery) said that I had sidestepped the position of other industries. On the contrary, I said quite clearly in my opening speech that any industries that thought they could meet the terms could submit an application to the Government for consideration. This applies to the chemical industry and to the steel industry, although the steel industry is far less electricity-based than the aluminium industry. Even special steels which are most highly electricity intensive are far less electricity intensive than aluminium. However, no application has been made by any other industry.
The right hon. Member for Leeds, North-East asked me about the effect of the aluminium smelter loans on the borrowing requirement, and no doubt he has in mind the central government borrowing requirement referred to in the letter of intent to the International Monetary Fund. This requirement is a residual figure; that is to say, the difference between the expenditure, plus 1464 lending, and Government receipts. The amount, of up to £19.3 million, due to be issued to the aluminium companies in this financial year would, taken by itself, add that amount to this years borrowing requirement.
But, because the companies will be meeting part of the costs of the power stations, the capital needed by the electricity boards will be reduced by the same amount. Therefore, the loans to the aluminium companies will be fully offset by the reduction in Government lending to the nationalised industries, and there will be no effect on the central government borrowing requirement.
With those answers to the questions which have been put to me, I hope that the House will now be prepared to approve the Scheme.
§ 11.35 p.m.
§ Mr. Nicholas Ridley (Cirencester and Tewkesbury)
Hon. Members who have raised questions against these Schemes have been met with a storm of moral disapproval, as if it was unthinkable for those who have to pay these enormous bills to question whether they will get value for their money. My constituents will get no benefit from this vast expenditure and, therefore, I hope that I shall be forgiven for asking what value they will get for this enormous sum of money.
I have done the calculation which the hon. Gentleman invited me to do about the cost of investment grants for these three smelters. My guess is that it will be £40 million. If I am wrong, no doubt the hon. Gentleman will correct me. Then I read that we are to lend £63 million under these two Schemes to the two smelters. I know that this will come straight on to the taxes. No Government have borrowed money for many years past. Then there will be the cost of the Local Employment Act grants. I do not know what they will be, but possibly they will be in the neighbourhood of £5 million.
In other words, before looking at the revenue side, I find that there will be a capital cost in respect of the three projects of about £110 million. The Government may tell me that my figures are wrong, of course. This is on the taxes alone. If I am wrong, surely it is beholden on a Government who believes 1465 in planning and doing all these things publicly in participation to put the figures before us. Why have we not had these figures? How dare the hon. Gentleman ask for approval to spend figures which go as high as £110 million without telling us the details.
How many jobs will be created? My guess is a few hundred. We shall not get value for money for the development districts by spending £110 million on perhaps 2,000 jobs.
§ Mr. Bruce-Gardyne
My hon. Friend talks about 2,000 jobs. He should recognise that the figure for Invergordon is 600.
§ Mr. Ridley
I was talking about the three smelters together. This is not value for money.
I want to help the development districts, but I am sure that I could create more than 2,000 jobs if I was allowed to spend £110 million in a more satisfactory way. On that ground alone, the project does not stand up to examination.
Then I look at the revenue side. We are told that the capacity to be provided will be of the most advanced new type. The Minister of State skated over this point. He said that that means that there will be no disadvantage to other consumers. But, if a slice of the newest generating capacity is pre-empted, the cost of carrying the old generating plant is put on to other consumers. It is in fact taking a subsidy at the expense of all the other consumers. The same is true of the Blyth smelter where the Coal Board is reputed to have been offered 3d. a therm for coal. The average cost of mining coal is about 5d. a therm. The top band of pits are producing at 7d. a therm. So other consumers will have to bear the cost to pay for those expensive pits at 7d. a therm and the average of 5d. a therm. Therefore, the subsidy in this case is considerable on revenue alone.
It is extraordinary when we look at the regional employment premium and this revenue subsidy plus, a subsidy of £110 million, for the Government to tell us that this is not a subsidised project. It is a highly subsidised project.
The question arises: is this the correct allocation of these resources? We 1466 are always being told by the Government's economic advisers that we must not look in terms of taxation, whether we want it up or down; we must look entirely in terms of the correct allocation of economic resources. Yet it seems odd to spend £110 million to create 2,000 jobs on a project which is split three ways, as so many hon. Members have said, and which is, therefore, pretty inefficient and unviable.
The motive is said to be import saving. I remember in economic debates hearing Government spokesmen say that we must export more and we must not invest overseas. Yet we are here encouraging our competitors to stop their exports and to invest here to keep up our exports. If we are to do this, may I ask what would happen if Australia did the same concerning our exports? This is a policy of protectionism designed to slow down world trade. If it does not pay us—as I believe it does not—to make aluminium here, we are distorting the whole mechanism of trade to save a few paltry imports.
§ It being one and a half hours after the commencement of proceedings, Mr. DEPUTY SPEAKER put the Question pursuant to Standing Order No. 2 (Exempted business).
§ Question agreed to.
That the Aluminium Industry (Invergordon Project) Scheme 1968, a draft of which was laid before this House on 6th November, be approved.