ACQUISITION BY PERSONS OF RIGHTS TO USE PIPE-LINES BELONGING TO OTHERS (Hansard, 5 November 1975)

§ Mr. John Smith
I beg to move, That this House doth disagree with the Lords in the said amendment.
The amendment provides that a pipeline owner should always be reimbursed an equitable proportion of the capital as well as the operating costs of the line by a third party admitted to the line by the Secretary of State.
I should like to recapitulate on the present position. A pipeline owner cannot incur extra costs because of the admission of a third party. If he has to re-route or enlarge his pipeline at the 489 planning stage he must be reimbursed the costs of these changes by the third party in whose interest they are to be made. If he has to modify an existing line, he must similarly be reimbursed. Both of these provisions are in the Bill.
In addition we have given the two following undertakings: first, if there are incidental costs, for example, disruption of the owner's supply or accidental damage to his line in the course of admitting a third party, these costs will also be reimbursed in full. Secondly, after entry the third party will be required in every case to pay his fair share of the running costs.
The owner will therefore be at least as well off as if there were no third party user. I stress "at least" because we have given a third undertaking—that with two exceptions the financial arrangements made by the Secretary of State will take account of the basic capital cost of the line. One of the exceptions is technical, that is where the contribution to basic capital costs is dealt with by some other means such as an adjustment in the price received by the owner for gas. Only the second exception remains—the case of marginal supply.
Lord Lovell-Davis explained in another place why we may—not necessarily shall—want a different régime to apply in this case. It is in the national interest to develop marginal fields as long as they are viable. Pipelines are very expensive—at least £1 million per mile—and the cost of a line could well mean the difference between exploitation and abandonment. Does it make sense to stand by and see valuable resources left unexploited where a neighbouring pipeline has spare capacity? That is the raison d'être of this clause which I do not think is controversial.
Can it be contended that it is so unfair to the owner to require him to accept the third party when at worst he will be no worse off than without the third party and better off to the extent that the third party makes a contribution to basic costs? It may not be the solution the owner would choose but I do not think that it can reasonably be held to be unfair.
For those reasons I hope that the House will accept that we should not agree with the Lords in this amendment.
490 I now refer to the question of the owner-installed spare capacity for his own future use. I can reassure the House on this. It is already provided—at the request of the industry—in Clause 23(2) that the Secretary of State may admit a third party—any third party, marginal producer or otherwise—only where he is satisfied that the admission would not prejudice the operation of the line for the quantities which the owner requires or may reasonably be expected to require to be conveyed. There is no question of depriving an owner of the capacity he has prudently provided for his own needs. The provision is directed towards genuine spare capacity.
This is not a major issue. I hope that the House will accept the motion to disagree with the Lords amendment.

§ Mr. Alexander Fletcher
This question, which is of considerable importance, was fully debated in another place. Despite that it seems that the Government have failed to recognise the significance and importance of this aspect of the Bill.
The central question is whether a company should be required by the Secretary of State to subsidise the development of a field, marginal or otherwise, which is controlled by another company. That question has not been properly recognised by the Government. The Government spokesman in another place limited his response to the important points raised, by giving assurances on the exercise of new powers. Those assurances on the owner of the pipeline not being out of pocket, and similar comments, are hardly likely to form any basis of confidence among owners of pipelines. In any contractual situation which may be considered, following the future evidence of the attitude of the Secretary of State to contracts which we have witnessed today, it is unlikely that people will feel confident about assurances given by the Government on operations in the North Sea or elsewhere.
The vague intentions stated by the Government spokesman in another place have not been included in the Bill. Therefore their validity as commercial criteria by which companies may make sharing arrangements in pipelines is questionable, as is their worth in the accounting and financial terms which the noble Lord 491 used when giving these assurances in another place.
It is our view that assurances are required within the Bill for several reasons. The first is the sheer magnitude of the pipeline construction and investment in the North Sea, where for current operations it is unlikely that any figure of less than £100 million is likely to be involved. Secondly, I should have thought that there was a need to encourage companies to lay pipelines and to do so with reasonable commercial confidence for future operations. Thirdly, the Bill should contain the conditions and assurances stated in the debate in another place on 29th October, when the Government spokesman, Lord Lovell-Davis, said: I must also remind the House that we are here talking about only those cases where the Secretary of State is called upon to intervene in the setting of charges—a situation which we hope and expect will be the exception and not the rule."—[Official Report, House of Lords, 29th October 1975; Vol. 365, c. 590.] It is reasonable to contend that such conditions may be tantamount to the Secretary of State touting for cases to judge. They might encourage companies to disagree or to strike a mean bargain with a pipeline owner in the hope of a soft settlement or soft judgment emanating from the Secretary of State. This amendment puts these fears and dangers into words. The Government should accept the amendment as providing a means of giving confidence to those risking money and reputation in the difficult business of laying pipelines in the North Sea.
We hope that the Government, even at this late hour, will reconsider their position on this amendment.

§ Mr. Deputy Speaker (Mr. Oscar Murton)
The Question is—

§ Mr. Patrick Jenkin
I hope the Minister feels that my hon. Friend the Member for Edinburgh, North (Mr. Fletcher) made a reasonable case. Usually on these occasions the Government move the rejection of an amendment and the Opposition state why the amendment should be accepted. I should have thought that the Minister might have given a brief reply, as these are points of substance.
The point is whether a company should be committed to subsidising a competitor 492 by giving up its spare capacity for less than its full market value. The company might think that a more viable operator will appear later who will be able to pay the full cost of sharing the pipe-line. It seems to me that the Government have not wholly addressed their minds to that point.

§ Mr. John Smith
I hope that the Opposition will acquit me of any discourtesy in not replying to the debate. I should have replied more readily had specific questions been asked or assurances required. Such points were not included in the speech of the hon. Member for Edinburgh, North (Mr. Fletcher). I assumed that he was content, in view of my long explanation, to let matters stand, having stated the position of the Opposition. Although I may have misunderstood him, I did not notice a look of surprise on his face when I did not rise to reply.

§ Mr. Alexander Fletcher
The Minister must not be fooled by my poker face. Such vague assurances as we have received would have more effect and give more confidence if they were included in the Bill. That is the critical point.

§ Mr. Smith
The Government reflected on this at some length. We referred to the debate which occurred in another place. We are satisfied that we should not make further changes to the Bill. We made a number of changes on this aspect of the Bill in Committee. There is a national interest involved which we think should be preserved. I have gone over the ground in some detail deliberately so that there should be no question that incomplete consideration had been given to it and no misunderstanding of the reasons which prompted the Government's attitude. To reiterate those reasons at length would be hardly profitable. At the heart of our case is the necessity for the development of the marginal fields. There will be pockets of gas in oilfields throughout the North Sea. The Department of Energy has commissioned a study on a gas-carrying pipeline and this shows the importance we attach to the economic use of pockets of gas which might not be economic to those who find them, particularly if they do not have an extra pipe. That is the underlying basis of our concern.
493 I have made clear, without challenge by the Opposition, that the owner of the pipeline can be no worse off by the admission of a third party, and I have given an assurance that it is genuine spare capacity that we wish to see utilised. I must, therefore, adhere to the Government's position and ask the House to disagree with the Lords in the said amendment.
I do not say that there is not a point of issue which Conservative Members have argued. I recognise that there is an issue, although it is not of fundamental importance, as are some of the great issues we have been discussing. We examined the exchanges in the House of Lords with considerable care before coming to the conclusion that we should disagree with the amendment.