HC Deb 28 July 1975 vol 896 cc1346-73

'It shall be the duty of the Secretary of State to prepare a report of each such agreement as is mentioned in section 2(1)(e) of this Act or similar participation agreements that have been made with the corporation or a relevant subsidiary as and when entered into, such report to contain information as to the parties involved, the field or fields concerned and the interest which the Government as a consequence has in each such field, and forthwith to lay copies of his report before each House of Parliament.'—[Mr. Gray.]

Brought up, and read the First time.

Mr. Hamish Gray (Ross and Cromarty)

I beg to move, That the clause be read a Second time.

The clause is designed to ensure that the Secretary of State will prepare a report of every agreement made on participation. The purpose of the proposal is to allow us to discuss in some detail the whole principle of participation. For some time we have been debating matters under the guise of participation and those matters have been a fairly considerable step towards nationalisation. When we talk about participation we mean a sharing, but when we have a situation where the Government are to have 51 per cent. of control of the oil industry we are no longer talking of participation; we are talking of wholesale nationalisation.

Is this in the best interests of the United Kingdom? The Opposition believe that it is not. For example, in respect of steel, shipbuilding, railways, coal and gas, airlines, aerospace and other matters, our performance, compared with that of our competitors, is dismal. We are bottom of the league. Indeed, we are a relegation-haunted team, if ever there was one.

In Committee, considerable publicity was given to an article in the Daily Mirror on 26th June showing clearly the various leagues in which our nationalised industries were participating. It was apparent that we were not doing at all well. We do not think that it would be advisable to inflict on our newer industry, which offers so much to this country, the dampening hand of Government intervention. The success record of the private sector in the oil industry is outstanding. We believe that the consequent benefits to those employed, either directly or indirectly, have been enormous. At present, there are about 19,000 new North Sea oil jobs in Scotland. About 27,000 Scots are at present involved in work connected with the industry, but 19,000 of those jobs have been directly created as a result of North Sea oil. That work has been created not by the Government but by private enterprise—private companies whose investment we need so much at present. We believe that the profits of those companies can be distributed through Government sources more easily by normal taxation methods. We believe that it is quite irrelevant to create the BNOC.

I was surprised that the hon. Member for Dudley, West (Dr. Phipps), whose opinion we always respect and whose knowledge we appreciate, took the line that he did on this subject. As a successful entrepreneur—the type of person we wish to encourage—he argued a case which was strangely alien to his nature and, indeed, to his business instincts.

6.15 p.m.

We believe that it is a mistake to create BNOC. What has happened following the Government's decision to take a massive intervention in the oil industry? First, the fear of intervention faces an industry which at present is desperately in need of further investment in the North Sea. That investment is suffering. The number of rigs has dropped substantially. In answer to a Written Question which I tabled to the Secretary of State for Energy on Thursday 19th June 1975, requesting to know how many oil exploration rigs were currently operating in the North Sea, I was told There are 25 oil exploration rigs currently operating in the United Kingdom sector of the North Sea."—[Official Report, 19th June 1975; Vol. 893, c. 501.] That was in the month of June, when those rigs should have been at their busiest.

The Under-Secretary of State for Energy (Mr. John Smith)

To put the matter straight, let me tell the hon. Gentleman that the information last week was that there were 29 rigs in operation. The figure goes up or down according to the plans of the companies.

Mr. Gray

I am grateful to the Minister for that information, and I am glad that there has been an increase to 29. Although that figure is substantially lower than the figure a year ago, it is at least encouraging that there has been a slight revival.

On the subject of participation, let us consider the case of BP. Before 1967 the Government held just over half the ordinary share capital in BP. Then, as a result of certain transactions, there was a shift in the balance of power, and in December 1974 48.2 per cent. of the ordinary stock was owned by BP, plus some preference stock entitling it to 48.04 per cent. of votes at shareholders' meetings. What did BP have to say to the Select Committee on Nationalised Industries? I make no apology for quoting from that useful publication, although we are sometimes criticised for so doing by some Labour Members.

Mr. Robert Hughes

All I said earlier was that when people quote from Select Committee reports, they quote those parts which buttress their line of argument. I do not complain about the situation. I am merely saying that it is a fact of life to be taken into account.

Mr. Gray

I accept that entirely, and I propose to quote from that document to support my argument. It is interesting to note what BP said on that occasion. I refer the House to page xxvii, paragraph 73, of that report, where we read: BP also said that when the Government's share was above 50 per cent. this had caused some difficulties for them in countries which excluded foreign government-controlled companies, and that the fall to 48 per cent. had enabled them to go to certain countries otherwise barred. That is an interesting point, because BP and BNOC could become partners in projects operating outside this country altogether.

When we are considering the whole question of participation we should realise that it can be a mixed blessing, particularly in cases where the Government have a controlling interest. Indeed, the fact that the Government have a controlling interest may adversely affect projects in certain parts of the world which might otherwise meet with considerable success.

BNOC is likely to be a partner in various consortia, but the problems which BNOC faces are very much the problems which it could inflict not only on its partners but on its competitors.

Dr. Phipps

Is it not a fact that this has operated in the other direction? If we look at the example of our own country, we have been welcoming the National Iranian Oil Company in partnership in the North Sea because we believe it to be to our advantage to have that sort of relationship with it. Is it not a fact that countries which have national oil companies are doing rather better, in terms of participation in the oil industries of other countries, than those without?

Mr. Gray

No, I would not accept that, because up till now successive Governments have been only too anxious to obtain investment in the North Sea and have not been all that fussy where the investment came from, as long as the investment was being made. One of the criticisms made of the former Conservative Government concerning licences was that they made the terms of the licences too attractive, but the hon. Gentleman has really made my point for me, which is that because those terms were so attractive we obtained a great deal of investment which we probably would not have managed to get otherwise.

Mr. Skeet

In the allocation of licences by the Irish Government, BP has done very well, and so have Royal Dutch Shell and Texaco Exploration Ireland. The only State company which has secured blocks alone is Deminex, which is German.

Mr. Gray

I am grateful to my hon. Friend for that comment. I now return to the problems which will face BNOC, particularly on the question of staff, which has been mentioned by quite a number of hon. Members. I turn yet again to the report of the Select Committee on Nationalised Industries. It is apparent from paragraph 115 that considerable doubt was raised by people who spoke to the Committee on this subject. The paragraph reads: Some of the strongest misgivings expressed to us about the establishment and prospects of BNOC concerned staffing. BGC thought the major problem facing BNOC was that of setting up adequate staff. NCB believed that the question of staffing BNOC in terms of numbers and quality was going to be a difficult one indeed. … BP said that to the extent that BNOC sought to act as an operator in the UKCS, then it would have very real problems … BP also emphasised, from its experience, the value of building up group expertise and team spirit over a long period; merely recruiting a number of individuals and putting them together did not make a team. I apologise to my right hon. Friend the Member for Wanstead and Woodford (Mr. Jenkin), who actually touched on that part of the quotation earlier, I think, but it is significant that all those people, knowledgeable in the problems, expressed similar views. The former Secretary of State for Energy, in an answer to my right hon. Friend, said: we shall have no difficulty in finding someone who will support the corporation."— [Official Report, 12th May, 1975; Vol. 892, c. 6.] I think we are all agreed—I am sure they would not deny it—that even at this stage the Government are having serious difficulty not only in obtaining the services of a suitable chairman but in getting the general outline of BNOC, staff-wise, off the ground. I remember suggesting, in the Second Reading debate, that the Secretary of State might be saving that occasion for announcing the name of the chairman. Here we are, almost at Third Reading, and we still have not the name of the chairman. We have very little more information about how this is to be achieved.

We believe that the terms of the new clause are extremely important and necessary at this time I should like to look a little further at some of the other problems involved in the whole question of participation. There is the problem of the tax system. We earlier agreed that the most suitable way of clawing back profits was through the normal tax system, without the risk involved and the enormous expense falling on public funds merely in creating BNOC.

During our debates in Committee we frequently had held up to us, as an example, the Government of Norway. This, it was said, was a Government which had tackled the problem in a splendid way. It was suggested that we should have done well to copy that Government. But that Government came a little unstuck in their taxation methods, because they were strongly criticised for the way they handled their excess profits tax. Last November the Norwegian Government proposed a 40 per cent. tax on excess profits, and there was such a great outcry about it—it would have raised the State take to 90.8 per cent.—that they decided to think again, and on 13th December they actually changed their policy.

This information can be found by hon. Members in a very interesting article which appeared in the Economist of 26th July 1975. It goes into the matter in considerable detail. The Economist was fairly strong in its criticism. In the article headed "Friday the 13th", it is stated that the Stavanger-based magazine, Noroil, put down this decision by the Government to a wave of unthinking, narrow nationalism", and Noroil dismissed the proposal as One of tae most ill-considered and inept oil political overtures yet … which would give the major investors in the Statfjord field less return on their capital than if they had put the money in the bank. I draw the attention of the members of the Scottish National Party to this, because they rival the Government in suggesting that Norway is the be-all and end-all of everything in oil planning. This example of narrow-based nationalism should be pointed out to them, so that they may bear it in mind in relation to some of their future arguments. However, we shall have plenty of time to hear about narrow-based nationalism when we discuss the next amendment, which is a Scottish National Party one.

It is because of the hazards and the complexities of exploration and production—but particularly of exploration—that we believe that the terms of the new clause are important, and we should like the House to give them consideration.

6.30 p.m.

Dr. Phipps

I have always been told to beware of Tories bearing gifts. In this debate, I have been offered no less than the chairmanship of the BNOC by the Opposition and a seductive invitation to share my entrepreneurial gifts with them. First, however, having considered the matter of the chairmanship, I do not believe that I could afford the cut in my living standard that would be entailed. Secondly, I do not want to be seduced into an argument about the corporation, as I wish to talk about participation. It is enough to say that it is not always the case that hon. Members will allow their private interests to stand higher than those which they believe to be the national interests.

I want to talk about the problems of participation as they affect the nature of the corporation itself. I have raised this point before, and I am grateful to the Opposition for new Clause 2, which again gives us the opportunity to discuss this aspect. We have not paid enough attention to the relationship between the BNOC and the Gas Corporation. That point appears in the report of the Select Committee.

Ever since we first proposed a national hydrocarbons corporation in 1967, I have believed that the Gas Corporation, if not in its entirety then in its exploration and production division, was the logical place to start the functions of the BNOC. If we had followed that course, it would have answered some of the points raised by the hon. Member for Ross and Cromarty (Mr. Gray). The Gas Corporation has a team which has been developed over many years. Many of its members are known to me, and I have great respect for their abilities. It is one on which we should build.

Not only is there a distinct lack of logic in having two national companies engaged in the North Sea it is difficult to understand the logic involved in the relationship between the BNOC and the Gas Corporation. If the BNOC goes to the Gas Corporation and says, "We will have 51 per cent. of your entire holdings", what will the Gas Corporation say? Will it say, simply, "No"? or will it say, "You will have to give us money for it"? or will it ask for special arrangements? It is difficult to see how the one will negotiate with the other, not only over existing fields but over new licences. What about the new round of licences? I hope that we shall adopt the principle that participation is the form in which the bid is made.

I am not in favour in bidding large sums of money—of auctioning blocks in the North Sea. I think that that experiment was a failure. I would rather see the system of bidding in the form of a company saying, "For Block A, which is a good one, we are prepared to give 70 per cent. participation, but Block B is not so good, so we will offer 40 per cent., and for Block C, which is poor, we will offer 20 per cent." In that way, not only would the Government get higher percentage participation in good blocks, but they would have less financial obligation in the poorest blocks. That would be excellent for the Government. It is the practice in many other countries. I see no reason why it should not be the practice here.

If that were the case, it would be impossible for the Gas Corporation to bid on a percentage participation. It might as well bid for 100 per cent. participation, because to the nation it would all be the same participation—it would be national participation, whether by the Gas Corporation or by the BNOC. I am far from convinced of the logic of allowing the two corporations to run in tandem in the North Sea.

I am not persuaded that many of the problems raised about the staffing and the time taken for a company of this kind to develop and become operative could not be solved by taking the Gas Corporation as the basis. We might even solve the problem of the chairmanship, since I understand that the Gas Corporation already has a chairman.

I turn now to the question of depletion policy. Partnership with the BNOC, far from being destructive with respect to its partners, is more likely to be constructive. Again, I return to the question of the specific working interests and knowledge of what is happening in a field. If the BNOC is involved in a working capacity, it is more likely to appreciate the true economic viability of a field than a Government Department is. This is a particularly important factor in the North Sea.

In developing a depletion policy, we have to realise the costs involved in getting the installations into the North Sea in the first place. If we are to produce a field in the North Sea, we are in a different situation from land development or development in shallow offshore waters. A well drilled as an exploration well cannot, in normal circumstances, be used as a production well. It is a write-off. To produce a field, one has to make an enormous initial investment in the form of platform facilities, pipelines and so on. It would be totally wrong of any Government to suggest a depletion policy which did not allow at least that investment to be covered by production.

I do not expect that this Government would suggest such a thing. But it puts a constraint upon depletion policy at a very early stage because if an oil company is to make the enormous investment ready it has to have an assurance that the field will be produced at an economic rate. If the BNOC is involved and is itself a partner to the companies, I believe that there is a much better chance of the Department's getting a thoroughly accurate assessment of the true economics than there would be if it were purely a matter of civil servants, however able, making that decision.

Mr. Patrick Jenkin

The Government have made it clear again and again that the BNOC is not in any way to be concerned with the exercise of the regulatory powers to which the hon. Gentleman refers. Therefore, if that is the case on which he supports the BNOC, he is in a quagmire.

Dr. Phipps

The point I was making was that the BNOC, far from supplying regulatory power, would bring pressure to bear on the Department, with its regulatory powers, to see that it allowed a proper depletion policy, I said that it will be better for the companies to be so involved with the BNOC, in that their case is likely to be better put for them by the corporation than by themselves.

Finally, I want to discuss the effects upon our own resources requirements and our balance of payments position. The best current estimate from the industry is that we will need to have about 100 million tons of oil by 1980. It is probable that we will have 100 million tons of oil from the North Sea by then, but it is of a different nature from the crude oil mix we use to produce the product mix we have now. It is much lighter, and of a better nature. It has a lower sulphur content. I believe that our current sulphur tolerance is about 2 per cent. to 3 per cent., which is a good deal higher than the sulphur content of North Sea oil.

Currently, we produce our product mix by importing largely medium and heavy crudes from the Middle East. One of the difficulties is to decide whether these crudes should continue to be imported to replace our valuable North Sea oil, which is not only lighter but commands a premium on the world's market, and could be exported as it is or refined and exported as petro-chemical products, as done by the Norwegians.

I believe that one of the most important factors in ensuring that we produce enough—and produce more than we require, so that we allow for exports, whether as products or as light oil, to help with the balance of payments—will be our dependence on the European market. I do not believe that the market for this oil lies anywhere but within Europe, and I should like to see the European countries more closely involved in both the economic and the physical development of these resources.

In that respect I see the rôle of the BNOC as extremely important. I believe that it is the ideal body to go to Europe and to various other countries to make the sort of arrangements, both financial and in terms of exports, that are required, in order that we develop our resources not only at the best possible rate but in the best possible way and are able to import cheaper, heavier crudes, which will allow us to take, as it were, a turn on the better crudes from the North Sea which we export. The better crudes will have to go to a home, and that home must be prepared. I believe that only by co-operation between Governments—in our case using the BNOC as our Government agency—shall we get the best deal for this country.

Mr. John Moore (Croydon, Central)

I shall be brief. I hesitate to comment, but I must say that it would have been most useful if we had had the presence of the hon. Member for Dudley, West (Dr. Phipps) on the Committee, because it is obvious to all hon. Members, however much we may flatter him and perhaps suggest that he becomes the first Chairman of the BNOC, that his views would have been most valuable during the arduous months we spent in Committee. Listening with great attention to what he said, I gained the impression that I was hearing an argument for the BNOC like an advance guard for enlightened capitalism. Perhaps the hon. Gentleman should examine at his leisure the extent to which he was agreeing with views very close to my own heart.

Mr. Viggers

I have not mentioned this point before, because I expected either the Chancellor of the Duchy of Lancaster or the Paymaster-General to enter the Chamber. As we are discussing participation and it has been made clear that they, together with Lord Balogh, are responsible for participation, does not my hon. Friend find it surprising that they are not present?

Mr. Moore

Those of us who have sat on both oil Committees in the last eight months—the Committee on this Bill and the Committee on the Oil Taxation Bill—have had the pleasure of the presence of hon. Members on the Treasury Bench who have been most amenable—recognising the ultimate taxpayers' interests—and the benefit of the assiduous work of the Under-Secretary of State for Energy.

The Under-Secretary and other hon. Members will remember the lengthy debate we had during the fourth sitting of the Committee, when we tried to discuss possible alternatives to the current quagmire at which we had arrived in our society, in terms of the development of nationalised industries. It was a most interesting debate, started by an amendment moved by my hon. Friend the Member for Bedford (Mr. Skeet), who sought to introduce commercial practices into the BNOC at the very beginning. Many hon. Members—although at present I speak only in a personal capacity—are not against participation. We believe that the State has arrived at a sensible attitude towards participation through the tax door. We all know that we are already getting more than 70 per cent. of the profits, at no cost to the nation. I should have thought that this would be regarded by all hon. Members as reasonable.

The tragedy of the debate in the fourth sitting was that we were not really discussing participation. During that debate we tried to make members of the Committee—now members of the House and, through this House, the public—aware of the route we had taken in the nationalised industries sector which would finish up not providing for the nation the advantages that all hon. Members, in all sincerity, were seeking to argue.

6.45 p.m.

Let us examine what we shall have from the Bill. The BNOC will not produce the sort of participation and advantages that the Government seek. It must produce additional negatives, associated with the creation of another nationalised industry. That is what we are debating when we debate the BNOC and this new clause.

I want to make two points, but I shall not go into the enormous detail that I did in Committee. The hon. Member for Dudley, West said that we were creating a new nationalised industry. If that is so we must ask ourselves, first, to what extent—if we are arguing the nation's interests—are the current nationalised industries responsive to the nation? Are they responsive through Parliament? Whether an hon. Member sits on the Public Accounts Committee or studies the proceedings of the Select Committee on Nationalised Industries it does not take him long to recognise the deep con- cern that exists on both sides of the House about the degree to which it is not in control of the financial arrangements of the nationalised industries. This is an accepted view on both sides of the House. It is not a matter in great dispute.

We are creating another vehicle which will be equally out of control in terms of its relationship with the public. Surely that is a non-starter from the very beginning? However, not only must we ask ourselves to what extent are we in control through Parliament, but, more important, are the nationalised industries successful? It is no good saying that the nation's interest demands participation through a nationalised industry if we create vehicles of the kind we have seen created in the last 25 years. They are patently unsuccessful.

I shall not pursue the subject of the figures which my hon. Friend the Member for Ross and Cromarty (Mr. Gray) quoted from that very erudite article in the Daily Mirror, acquired from the Financial Times for a previous month. However, I was delighted to see the article in that more interesting popular paper, because it brought out the point about overmanning. I shall not pursue the argument, because one does not have to be regarded as denigrating or attacking organisations to accept the nation's judgment today, which is that the nationalised industries, however much they try, are patently unsuccessful.

Dr. Phipps

Does the hon. Gentleman accept that one of the problems with the current nationalised industries is that we are the people who determine the prices that they are able to charge, whereas in terms of participation in the North Sea—where participation is a very important factor—the prices that are charged will be international prices charged by the international oil industry as a whole? Here, we are looking for a piece of public enterprise as opposed to the salvation of "lame ducks" or just the provision of public services.

Mr. Moore

We argued this point in considerable detail in Committee. I spent half an hour trying to argue the problem of pricing for the nationalised industry boards. I tried to get inside their minds and analyse the difficulties that we, in the House, had created for a nationalised industry in endeavouring to be competitive, when we tried to structure it in a competitive way. I tried to stress that whichever side of the House was in control of the Government politicians would create situations that would make it impossible for a nationalised industry to be competitive. This has been done successfully or, perhaps I should say, unsuccessfully for the past 25 years.

We know the problem of social pricing. I cannot accept the optimistic note lying behind the words of the hon. Member for Dudley, West. I cannot believe that the BNOC downstream will be successful, especially as I shall not discuss this matter now, but we shall come to it later—with its inability to segregate its accounting functions properly. There is no way in which we can judge the commercial viability of the instrument that we are creating in the Bill. I am concerned about what it will produce. In my view it will produce the reverse of what the Government sincerely wish to produce. I think that it will produce the same sort of monopoly organisation which will eventually monopolise the extraction, production and distribution of petroleum, right the way through to the petro-chemical industry. That is the sort of beast it will produce. That sort of beast has not been a success for this country over the past 25 years, and the beast being created by the present Bill will be no more successful.

Mr. Gordon Wilson

If I have a criticism of the new clause it is that it does not go far enough. The proposal is that the Secretary of State shall prepare a report on each agreement which is made and that that report shall be laid before each House of Parliament. I should much prefer to see coming before Parliament a report on each negotiation so that we could at that stage say whether we agreed. My worry here is much the same as the worry I had over the Oil Taxation Bill, when the negotiations went on under cover. Eventually, the Government collapsed under pressure from the international oil companies and international banking institutions, and, knowing the poor creditworthiness of the United Kingdom, we were faced with a fait accompli.

We all know that participation negotiations have been going on to fulfil the pledge in the Labour Party manifesto, but already it has already boiled down to a "no gain, no loss" basis. I had always thought that one of the advantages of participation was that one went into it for gain in the public interest, and one of the reasons for doing it was that one produced petroleum at production cost and could sell it back to the oil companies at the international price if one did not intend to use it for one's own national oil company.

Mr. Skeet

The British Gas Corporation buys natural gas at 1½p a therm and then charges the public 10p a therm. Is that a public benefit?

Mr. Wilson

One problem at the moment is that the British Gas Corporation is running at a loss.—[HON. MEMBERS: "Yes. Of course."]—This is one of the problems connected with what it is charging and what it has been doing, but that is a far more complicated issue than the straight issue of participation in the context of the oil lying off our own coast. There may be an argument in connection with natural gas coming from the Frigg Field or the Brent Field, and I say only in passing that we have very little information about the prices likely to be charged in connection with those supplies.

The theory of participation was that one would make a profit and that that profit would go to the BNOC. My fear, however, is that the Government will be paying to the oil companies compensation for certain items of profit for which they should not pay, and we shall not know the terms of the negotiations till long after they are over and matters are settled. Therefore, as I say, it would have been more useful had we decided that such agreements should be brought before the House for approval and, if necessary—here, I take a view very different from that held by other hon. Members on this side—be sent back to the Government with a clear instruction that they renegotiate on far stricter and tougher terms.

One of the points that came out in Committee about the value of the National Coal Board holding was that the Government would be repaying the capital of about £50,000 plus the exploration expenditure, and certain hon. Members on the Government side wondered whether the NCB was being done down, although it is another public corporation. I was interested to read in the North Sea Newsletter of 11th July 1975, published by the oil consultants, Wood Gundy Limited, an analysis of what is happening: NCB(Ex) is to form the basis of British National Oil Corporation (BNOC). Its interests are identical with Continental (save Norwegian Statfjord) and Gulf (barring the Southern gas area), for net oil equivalents of about 600 million barrels. This ranks NCB as a North Sea leader, ahead of several international majors. Valued at a conservative 75 cents. a barrel, NCB(Ex) is worth some $450,000,000: rather more than the £50,000 which the United Kingdom Government is to offer for it under the Petroleum Bill (50,000 shares at £1 each). As we know, although it is not stated, there will also be the refunding of exploration expenditure.

The argument there is that if one is dealing with one public corporation one can balance with one hand against the other, but that ignores the question whether public companies which are involved in exploration, perhaps in a partnership sense, learning the job with other companies which are very experienced, must of necessity do ill. Certainly, the NCB is an example of one public organisation which has done extremely well, but which then, by the sudden appearance of BNOC, is now to find quite a substantial sum of potential profit stripped away.

I return to the argument that if the clause were stronger, requiring the participation agreements to be brought back to the House while in process of negotiation, the House could exercise some control, and that control, I hope, would be exercised in favour of tougher agreements than those which, I fear, will ultimately appear on the scene.

Mr. Viggers

I must again express amazement that the Ministers responsible for participation have chosen not to be present for the debate. We have so far had from the Under-Secretary, who is always very courteous in these matters, no explanation of their absence. Are we to take it that, having had Second Reading and Standing Committee, the Government feel that Report and Third Reading are mere formalities to be hustled through during the latter part of July, and that no one need regard this as a debate of any importance?

Mr. Gray

I suggest to my hon. Friend that the real reason why the Ministers concerned with participation are not here is that the Government realise that if they brought them here at the same time as the Secretary of State there would be such a danger of controversy on their own Front Bench that they would be put in great embarrassment.

Mr. Viggers

Yes, indeed. I am obliged to my hon. Friend. In the Standing Committee we did not have the benefit of advice and guidance from the Ministers responsible for participation, and now, on this most important new clause, I am amazed at their absence.

I have to declare an interest in the oil industry, an interest which I have recorded on several previous occasions. How is participation to work? There have so far been four participation agreements, and in each case—Deminex, Blackfriars, Burmah and Tricentrol—there are special features which might cause the company concerned to wish to settle with the Government. But what is to happen where a company has no such desire to settle?

This question was put specifically to the previous Secretary of State for Energy, the right hon. Member for Chesterfield (Mr. Varley)—and here I quote from Ocean Industry of May 1975, page 51: There is inherent risk in our business and there must be compensation accordingly. What if a company does not want to sell or negotiate, and turn over 51 per cent. to the British Government? The right hon. Gentleman replied: I hope that most companies will want to come into partnership terms with us, and I will absolutely stand by the word I have given that we are not confiscatory. The right hon. Gentleman then said: You must realise there is a political commitment to get 51 per cent. participation. What a lame, limp reply that was.

What is to happen if companies do not wish to sell 51 per cent.? Hon. Members on the Government side think they know the answer. They believe that powers will be introduced in due course to force recalcitrant oil companies to sell a 51 per cent. stake. After all, they argue, this is a nationalisation Bill, so why pussy-foot around with voluntary provisions which merely permit companies to sell 51 per cent. and allow the Government to buy? The hawks of the Left wing have no patience with such measures and believe that compulsory nationalisation measures will be needed soon.

My right hon. Friend the Member for Wanstead and Woodford (Mr. Jenkin) has referred to the rundown of activity in the North Sea. There is no doubt that the confidence of international oil companies has been shaken. But we in this country need their investment drive to help us to develop our resources.

For my part, I do not believe that the Government will shortly bring forward measures to force companies to sell 51 per cent. participation, because I believe that there is a residue of common sense and realism among the Government's advisers. They know that Britain needs foreign skills and investment, and they recognise that compulsory nationalization would cause serious alarm among foreign investors. There have been consistent and repeated assurances that acquisition will not be compulsory, but there remains something which could cause as much alarm as open compulsory acquisition, and that is forced acquisition.

7.0 p.m.

The oil industry works in an environment which is created by Governments. There are 100 ways by which the Government, with a nod here and a wink there, can give oil companies the impression that they will have favourable treatment in the next round of licences or in some other way. I am not suggesting that the Chancellor of the Duchy of Lancaster and the Paymaster-General are resorting to blackmail in their dealings with the oil companies, but how does one persuade a company to sell 51 per cent. when it does not want to? If there is a desire to buy 51 per cent. and no one wants to sell, that is a sellers' market and the seller could name his own price. The present situation does not make sense, and the fact that the Government have declined to show their hand is cause for concern.

In Committee the Secretary of State said: these are voluntary negotiations and that it would be against the public interest for us to show our hand in too much detail". Later, in the same column of Hansard, he said: it manifestly would not be in the public interest for a Minister engaged in the nego- tiations with these oil companies to answer every question that might be put."—[Official Report, Standing Committee D. 17th June 1975; c. 422.] What an extraordinary statement for a Minister to make. Why not disclose one's hand and tell us the position with regard to negotiations? This comes from a Secretary of State who says he believes in open Government. Is that only when it suits him?

There is another point which I have put on several occasions which has not been given sufficient credence. The Government are proposing to buy into oil at a cost of £2,500 million to £3,000 million. This means the Government are gambling on the price of oil continuing to rise, or at least not falling. It is a gamble just as much as if they bought £3,000 million worth of copper bars or soya beans. They are gambling on the future market in commodities. It is estimated to cost £100 per barrel per day to develop oil in the Middle East. The estimate for the North Sea is £2,500 per barrel per day. If the Government go ahead with their participation plans, it will not be the Arabs who will have most need to keep up the price of oil but the British Government. That point has not been considered seriously enough. If the Minister says that the chances of the price of oil coming down are remote, I would agree with him. It is an improbability, but it is not good enough to gamble £2,500 million or £3,000 million of British taxpayers' money on something that is merely a probability. If participation proceeds, the Government dare not let the price of oil drop below 7 or 8 dollars a barrel, and, as development and exploration costs increase, that price will increase.

The new clause is a modest measure requiring the Government to keep the nation informed of developments in participation and the manner in which negotiations are being handled and developed as companies agree, if they do. I cannot see that it is anything but sinister if the Government do not accept it.

Mr. Skeet

I agree with the remarks of my hon. Friend the Member for Gosport (Mr. Viggers). The idea of the negotiations for 51 per cent. being put forward by the Government is that they hope to catch as many sprats in their net as they can, but they are prepared to leave those who do not come into the net until, possibly, they nationalise them at a later date. Let us say to the companies concerned—and I can because I have no consultancies with them—that if they stand out against the Government for good economic reasons or because they want to control a field in the North Sea, there is no possibility of the Government passing legislation to nationalise them within the next three years. By then, there may be a new Conservative Government, things could change and reason might prevail.

What do the Government mean by participation? Is it simply that a corporate State will participate or are they prepared to allow the public to participate as well? In Alberta a number of shares were offered on public subscription, not only to the people of Alberta but to the rest of the Canadian people as well. They could participate in the company concerned.

I do not know whether the Under-Secretary had had the opportunity to to read the supplement on Iran in The Financial Times today. It refers to: A scheme to make major manufacturing companies offer 49 per cent. of their shares to employees and the public. What a good idea this is, but we do not find it being brought forward by our own Government—quite the reverse. What are the benefits? The article reports: It will encourage greater production, a greater sense of belonging and a greater social acceptance, says the Finance Minister … The scheme is an attempt to achieve a more equitable distribution of wealth. But what do we find in our case? Participation just means that the Government will step in to acquire 51 per cent. There will be no opportunity for any Englishmen, Scotsmen or Welshmen to buy any shares. This is a charade. The Under-Secretary should spell out a little more clearly what he means by participation.

If the Government force companies to concede 51 per cent. ultimately, they will create a precedent which other nations will follow. BP and Standard Oil of Ohio have reserves in Alaska totalling 13 billion barrels—roughly equivalent to the reserves in the North Sea. If Fodco, which was a State corporation, was ever established in the United State, could not the argument be used that it should take a 51 per cent. participation in the Alaska deposits? Would not BP and the British Government have lost a considerable sum of money? Have the Government considered the Mineral Leasings Act passed in the United States in 1920? It deals with deposits of coal, phosphate, sodium, potassium, oil, oilshale and gas. It says: Citizens of another country, the laws, customs or regulations of which deny similar or like privileges to citizens or corporations of this country, shall not by stock ownership, stock holding, or stock control, own any interest in any lease acquired under the provisions of said sections. I understand that this Bill has not yet been repealed and could have extremely serious consequences for BP.

The Government insist that when negotiations have failed, they will bring in the big hammer and make the whole compulsory, or, if the negotiations do not fail, include BP in the net, but they could be caught under the provisions of the 1920 Act. We cannot assume that Governments or Parliament will handle these matters the way we would like on this side. Take the recent muddle over the construction of oil platforms. In 1974 the projection was that between 55 and 80 platforms would be required by 1980. Now the projection is for between 43 and 61. The Minister had to go scurrying to Scotland the other day to have talks with a Dutch company to try to persuade it to build construction platforms in the United Kingdom. I wish him well, but that is what happens when there is too much control in the hands of the State. The State is not capable of handling these matters in the way in which we in the United Kingdom would desire.

I agree with the point made by the hon. Member for Dudley, West (Dr. Phipps). He said that if there has to be a BNOC it ought to be the British Gas Corporation. I deviate from that view in only one respect. The BNOC will have to be formed now because it has been at the root of this Bill, but I predict that it will last for only about a year and that it will then be merged with the British Gas Corporation.

We are trying to understand what participation is. We are trying to understand the purpose of the BNOC. If there are two major international oil companies in the United Kingdom already we do not want another. If the oil companies are already serving this country by providing petrol at a relatively cheap price, bearing in mind the tax imposed by the host country and this Government, why bring in another competitor? How will it rationalise the market, and what opportunity will it have of doing anything but lose money for the taxpayer?

I therefore suggest that the Government should consider our ideas on participation. We believe that it will not be necessary for the BNOC to participate. The Government would have one "let out" in that they could lay down any conditions they pleased for subsequent licences in the next round. If they want to make clear that the BNOC must participate then, that is up to the Government because the companies would have known what the conditions were. For existing licences, however, it is totally wrong to impose participation, and it is morally wrong that in the background lurks the threat to nationalise companies. I hope that the Government will take this into account.

Mr. Rost (Derbyshire, South-East)

The Government call it participation but it is nothing of the sort. It is 51 per cent. nationalisation. We believe that what is proposed is irrelevant, costly, damaging and against the national interest. It is nonsense. If we have to have it, the very least we can expect is a proper statement of the details of each particular piece of grabbing. The clause suggests just that. It is reasonably modest and sensible, which is more than one can say for the Government's policy on 51 per cent. nationalisation.

We expect our proposals to be accepted because they contain nothing to which the Government can object. The Government should accept them in their own interest. If they are to proceed with 51 per cent. nationalisation they should at very least be prepared to provide evidence that it is being undertaken on a fair basis, and that the dealings between the Government and private enterprise are honest and above board. We are told that the nationalisation negotiations are proceeding on a voluntary basis. Let us have the evidence, because we have not had it yet.

We have suspicions which no doubt could be dispelled by the Government accepting the clause. The suspicions are that the negotiations for nationalisation are proceeding behind the scenes, and, goodness knows, they are taking long enough to conclude. The suspicion is that a certain amount of pressure is being exercised and that under this legislation new powers for strengthening the Government's negotiating hand are provided for the Minister, powers perhaps for manipulating the allocation of licences to those companies that are prepared to concede nationalisation. We suspect that he will have powers to influence the investment programmes of those companies which are prepared to concede, and that the difficulties which those companies may get into over financing very heavy capital investment programmes in the North Sea will be eased.

The BNOC will be trading unfairly as a nationalised corporation in comparison to the private sector. That injustice, for example demonstrated by exempting the corporation from PRT, will work against the private sector and to the advantage of the nationalised sector. It will squeeze the cash flow of the private sector and introduce retroactivity into various financing and other activities. It will make life far more difficult for the private sector.

The country is entitled to know the evidence for saying that the negotiations are voluntary. We want to be certain that the Government are not using their strong-arm tactics behind the scenes, blackmailing or bullying or even using patronage in order to exert influence over the policy for 51 per cent. nationalisation.

I therefore urge the House to accept the clause. It gives the Government an opportunity to show their good faith and that they are negotiating on a fair and open basis with nothing to hide. It will give the Government the opportunity to remove the veil of secrecy which hangs over these negotiations. Let us have out in the open the proof that the Government are dealing fairly and honestly with these companies.

7.15 p.m.

Mr. John Smith

The clause follows the pattern of the previous new clause in that the Opposition have chosen it as a vehicle for discussing a matter of general interest; namely, participation All those who served on the Committee will share my feeling that we have been round this course once before. We had debates on the principle and practice of participation at some length in Committee. Our debate today has followed much the same pattern as was adopted in Committee, ending with the usual message of joy and hope from the hon. Member for Derbyshire, South-East (Mr. Rost), who can always be relied upon to put in a prejorative way anything which emanates from a Labour Government.

We have had repeated the dogmatic opposition of the Conservative Party to any notion of public enterprise or the extension of public enterprise in any shape or form. I waited, as I always do in debates on participation, to hear whether they had yet made up their mind about whether they would adopt participation in any future round of licensing for which they were responsible. If participation is so thoroughly wrong as they have constantly argued in our debates they should forswear it as an instrument of future policy. If they are not prepared to do that I see an element of hypocrisy in the argument they constantly use about the principle of participation.

If this country were not to follow the principle of participation and form a State oil company it would be the only country in the Western world, with the exception of the United States, which did not do so. The Government's desire to secure participation has been explained before. It will give us a measure of national control over an extremely important national asset. It will give the Government a title to the oil. It will give the Government the benefit of the advice and assistance of a State oil company which would acquire expertise and knowledge in the way which was convincingly demonstrated by my hon. Friend the Member for Dudley, West (Dr. Phipps). It provides the possibility of the Government having a 51 per cent. State option in future licensing rounds. It will give us the opportunity of allocating blocks on a 100 per cent. basis to the BNOC so that the Government will get 100 per cent. and not 70 per cent. from some operations in the North Sea.

All these arguments have been advanced before, and, therefore. I do not claim originality for my reply. However, I say that in the knowledge that there has not been much originality in the attacks made again today on participation and the BNOC as a concept.

My hon. Friend the Member for Dudley, West introduced the argument about the British Gas Corporation and what its relationship will be to the British National Oil Corporation. He will be aware of the provisions in Clause 12, under which the Secretary of State has a certain influence on co-ordinating the activities of both corporations. I am aware of my hon. Friend's views on the matter. He has made them clear to me before. Many of our colleagues in the Labour Party are aware not only of his campaigning rôle in trying to persuade the party to adopt the policy of a State oil corporation but his views on what should have happened to the British Gas Corporation. This is not a suitable occasion to go into that matter in detail, because the Government have made up their mind and prefer the route of a British National Oil Corporation.

The hon. Member for Dundee, East (Mr. Wilson) said that we were not going far enough in our participation negotiations. He is aware that one of the difficulties that the Government face is that licences were given out on the terms decided in 1971.

Mr. Patrick Jenkin

In 1969 and 1965 —the third and second rounds—under Labour Governments.

Mr. Smith

The right hon. Gentleman knows that during the earlier rounds we were thinking of gas, not oil, and 1971 was the important licensing round for oil.

I very much agree with the conclusions of the Public Accounts Committee, which criticised the Conservative Government for not having considered participation in 1971. It is a tragedy that we did not follow a policy of participation earlier. As The Economist observed last week: The present Labour Government has been involved in a catching up exercise to close the gaps in Britain's North Sea oil policy. This is one of the gaps.

Mr. Patrick Jenkin

The hon. Gentleman perpetuates mythology. We dealt with this matter at considerable length in Committee, and I thought that the hon. Gentleman accepted the point that all the previous licensing agreements were made on identical conditions. When the hon. Gentleman says that the oil finds were made under the 1971 round, that is not true. The Forties field was found as a result of licences issued in the second round, for which his party was responsible.

Mr. Smith

I do not want to shuffle off any blame attributable to previous Labour Governments, if an objective case can be made. It is silly for people to introduce party political points and defend previous Governments. We are concerned with 1971, which was the major round of oil licensing. That is indisputable.

As the right hon. Gentleman is fond of newspaper cuttings, I am sure that he has added to his list some of the comments in The Economist last week about the basis on which those licences were awarded. [Interruption.] It is true that those remarks were addressed to all parties, but the party with most influence was that which was in government in 1971, when there was the major round of licensing.

Mr. Gordon Wilson

The Minister perhaps accepts his share of the blame for what happened in the 1960s and early 1970s, which cause difficulties about the nature of participation. Participation is highly desirable. Considering the tremendous loss of public resources which will be occasioned by the Government's failure to go through with their negotiations on participation in the full sense, does the hon. Gentleman agree that it would be better to move as quickly as possible to a Scottish Government, which would be a new high contracting party and, therefore, not bound by the previous agreements?

Mr. Smith

I do not see how anybody can assume the existence of a Scottish Government, as the majority of the electorate rejected that concept at the last General Election. I prefer the guidance of the electorate to a fantasy about the future.

We have had the usual debate on the nature of participation. As on previous occasions. I have tried to set out clearly why the Government wish to follow a policy of participation for this country. We are in good company with countries which do not necessarily have Left-wing Governments. It is the Conservative Party that is becoming isolated in its continued objections to the principle of participation.

In a sense the Government agree with the spirit of the clause. It is right that Parliament should be informed about participation agreements, and information broadly along the lines described in the clause will be in the BNOC's annual report. However, I do not believe that it would be proper to put that provision in the Bill.

The Opposition have legitimately used the clause as a vehicle to discuss the general principle of participation. We are not likely to reach agreement on this matter, as there are profound differences between the parties on it. We believe that fundamentally it is of great importance to the country to assert public control over the development of the North Sea and to acquire a national capacity. That will redound to our benefit in controlling this important national asset.

I end on a note that the hon. Member for Gosport (Mr. Viggers) introduced. He talked about the great risks of investing in the North Sea. One talks of risks when public enterprise is involved. That does not seem to deter companies such as the one of which the hon. Gentleman is a director from making investments in the North Sea. [Interruption.] That is not a personal attack. The hon. Gentleman declared his interest. He has never attempted to conceal his interest in an oil company. I make the point, as I am entitled to, that for someone in his position to talk of risks, when his company is making an investment in the hope of making a profit, indicates a certain selectivity of approach. We believe that there are profits to be made for the nation, just as for oil companies.

Mr. Gray

When we began the debate I did not imagine that we should persuade the Minister to accept the clause. It seems that the 25 Committee sittings have done little to mellow him. He still clings to his doctrinaire Socialism.

It is interesting for the official Opposition to note that the hon. Gentleman has been joined by Scottish National Party Members, who for once cannot adopt a suitable posture here and a different posture outside. [Interruption.] If the hon. Gentleman had given way to me, I might not have had to make the point so forcefully. The Scottish National Party Members are firmly committed to a policy of supporting the Government's attitude to oil. Today they went so far as to say that an independent Scotland would probably be even more Socialist than the Socialists. They made little secret of that.

The Under-Secretary quoted from The Economist in connection with participation. He might be interested in the following quotation from the same issue: The idea behind participation is to secure greater state control over what is happening out in the North Sea. That makes sense for Norway which had no oil expertise behind it but Britain has a number of established oil companies. The British attempt to negotiate widespread participation agreements therefore seems a rather costly and fruitless exercise, especially as the government insists that it wants no extra financial gain from participation. I am glad that the Secretary of State has returned to the Chamber, because I wonder whether he agrees with the writer that the Government want no extra financial gain, and whether he agrees with some of his Cabinet colleagues who have expressed rather controversial views—no doubt controversial to him—on the same issue.

We could debate the matter for a long time, but we have a huge list of amendments to get through, and we are operating under a guillotine. It is doubtful whether we shall be able to debate before 11 p.m. more than a fraction of the amendments selected.

Therefore, bearing in mind that a Division now would probably cost us another 15 minutes of valuable time, I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

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