HC Deb 08 July 1981 vol 8 cc554-60

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Newton.]

2.13 am
Miss Betty Boothroyd (West Bromwich, West)


Mr. Nicholas Baker (Dorset, North)

On a point of order, Mr. Deputy Speaker. This Adjournment debate relates to a part of Dorset and, indeed, to the constituency of an hon. Member who is not able to be present. The purpose of my point of order is to ask whether it is in order that Adjournment debates should be used by an hon. Member for a matter relating to a constituency which is not the hon. Member's own constituency.

Mr. Deputy Speaker (Mr. Bryant Godman Irvine)

I have no control over that. It is for the hon. Member concerned to decide what Adjournment debate he or she wishes to initiate.

Miss Boothroyd

Thank you, Mr. Deputy Speaker. Perhaps I can answer that point of order by saying, as I intended to do at the outset, that I raise the question of the enforced sale of the British Gas Corporation's holding in the Wytch Farm oilfield for three reasons.

The first is that I believe the Government action is robbing the British public, whose taxation has matched the expertise and the initiative of the British Gas Corporation. I hope that the hon. Member for Dorset, North (Mr. Baker), who raised the point of order, is listening to my reasons. As I said, the taxpayer is being robbed because it is that money, matched with experience and initiative, that has made British Gas's onshore oil development the success story that it undoubtedly is.

The second reason is that the directive is nothing short of sabotage of a successful and profitable State industry whose statutory duty it is to protect the customers' interests.

The third reason, equally important, is that the Government have no mandate for their action.

Although I have no direct representative status in this House for the area concerned, I am a taxpayer, I represent thousands of taxpayers, and as an elected Member I shall use every parliamentary opportunity to demonstrate that the Government's decision is based on doctrine. It is doctrine whereby the Government have applied the principle, irrespective of the facts and irrespective of the circumstances, facts and circumstances they have decided totally to ignore.

A characteristic of industrial development has been that if a new technology becomes available, industry must be free to take advantage of it. That was recognised by a Conservative Government in 1972, when the Gas Act of that year gave the right to British Gas to explore for gas and for oil. Less than 10 years later the Government are seeking to tear up that statutory right.

One of the reasons that the Government peddle for so doing is that they say that these things are better done by the private sector. What nonsense. I mention this because I would not wish the Secretary of State to overlook the fact that, had it not been for the initiative taken at the time by British Gas, and had it not invested and backed the geologists' report, no exploration would have been carried out, because the private sector was not prepared to take the risk involved.

It is true that British Petroleum acted in a consortium, and tribute has to be paid to BP for training some of the staff and for seconding some of the experienced people in the early phases of exploration. But throughout BP remained sceptical about the entire exploration programme, and it has to be placed on record that British Gas was the driving force.

I turn briefly to the cost and the revenue of the venture. I understand that to date the capital cost of development since 1973 is about £20 million, of which about a quarter has been used in careful protection of the environment of an important rural area. I want to return to that in a moment or two.

At the current rate of production of 4,000 barrels of oil daily, the annual revenue from the field is about £22 million. As to the future, the estimated reserve potential of that field is 100 million barrels of crude oil. Of course the field is profitable. The Minister knows that, the gas industry knows it and the country knows it. The Government would not be selling it off if it were not profitable.

The Opposition have come to recognise that the Conservatives are constantly demanding profitability, especially from nationalised industries. If a nationalised industry makes a loss, we hear primaeval noises from the Government Benches attacking the management of nationalised industries for incompetence and lack of commercial judgment. Management is told that it must exploit the commercial possibilities when it sees them.

Here is a nationalised industry whose profitability and success are a monument to the dedication of its work force. Its reward for that dedication and initiative is to be told to sell it off. Instead of financing future investment from profit, therefore, it will have to do so either by charging the customer higher tariffs or by borrowing, which is ultimately a burden on the taxpayer, so the burden is on the taxpayer in any event.

That is why I say that the Government are sabotaging the gas industry and behaving towards the taxpayer no better than a pickpocket at a racecourse. I feel strongly about this behaviour, and that is why I have chosen to raise this matter today.

At the risk of being cynical, I should tell the Minister that I have done some research. I hope that he has, too. I can find no evidence of any Government anywhere in the world over the past 20 years selling off its oil wells—if the Minister knows of one, perhaps he will put that on record—let alone a Government who have sold their oil wells to reduce their own public borrowing. Yet that is the game being played by the Government.

The Secretary of State has seen the figures. He must know that oil and gas values are currently languishing after OPEC's moderation and that the proceeds will not raise their true value at this time. Perhaps it was partly for that reason that a Dorset county councillor wrote in an open letter to the hon. Member for Bournemouth, East (Mr. Atkinson): The Government's decision to issue this directive now is akin to selling hay at haymaking time". That is very apt and needs no further comment from me.

The Secretary of State must also know that the proceeds of a sale will make only a very short-term dent in the public sector borrowing requirement and will in fact increase it in the years ahead because, as I have said, the corporation will be able to fund less of its investment from its own resources. I should have thought that the Secretary of State would have seen the figures on what will happen to the public sector borrowing requirement. If the penny has not dropped in his mind, it must have done so with the Treasury. The Treasury must surely know that the initial beneficial effects of a sale on the PSBR, to anybody in the tax position of British Gas, would diminish in about three years. There is a logic in the law of diminishing returns, and the Minister surely knows it.

It would actually pay the Government to raise the money on the open market—I do not know whether the Minister will tell me today what the cost is, but figures have been bandied about as to the likely price of the Wytch Farm oilfield—and buy it themselves from British Gas. It is true that they would pay high rates of interest, but that interest would not be indexed whereas, because of the known potential oil find in that area, they would he buying an indexed asset at a fixed money cost. They would be on a winning ticket.

Instead, the Government are indulging in nothing less than national asset-stripping. I give the Minister fair warning that we shall not support the sale of Britain's seed corn and that with the return of a Labour Government those assets that he now intends to sell will be restored to British Gas at the earliest opportunity.

I want to turn for a few moments—this is important to those in the area—to the care that has gone into protecting the environment during this development. British Gas has proved that industrial advance need not conflict with local interest. There is ample evidence to show that the local authorities in the Dorset area have responded to the care taken in protecting the environment and preserving the landscaping. They have obvious faith and trust in the partnership that has been forged with British Gas.

But I am sure that the Minister is aware of the disquiet in the area. Less than a week ago, a view was expressed by local authority members at a planning meeting when they were examining a proposal for exploration from the British Gas Corporation. They said that they were worried because they had no idea who the final owners would be.

One committee member went so far as to say: I am of the opinion that we should not give permission for some company of whom we know nothing and with whom we have had no negotiations". To be on the safe side, they deferred the decision on the planning application. That typifies the attitude that British Gas is beginning to find, and it expresses a lack of confidence in the future by those whose elected duty it is to safeguard the environment. Great concern has also been voiced by the Council for the Protection of Rural England.

I shall conclude because I want to hear the Minister's reply. I want him to give me figures, and I also have another question to put to him. In deciding to sell the corporation's share of the oilfield, it seems obvious that the quality of the Government's decision-making is abysmal. There has been no quality input in the process of arriving at that decision. It is as threadbare as a worn-out dishcloth. The decision springs purely from doctrine, and it is fanned by yelping Conservative Back Benchers seeking to reduce the authority of the public sector.

Moreover, the Government have no mandate from the electorate for their action. I have read their manifesto thoroughly, and page 15 refers to nationalisation. However, it says nothing relating to this. Government by directive—which this is—aimed at smashing a profitable State industry has no place in that manifesto with which the Tory Party conned the electorate.

The Government can go some way towards redeeming themselves. I ask the Minister to refer this matter for inquiry. I am entitled to do that in an Adjournment debate. He should refer it for inquiry by the Select Committee on Energy. This is a proper matter for such an inquiry, and the fact that the Government have no mandate makes it important that they should so refer it. The circumstances leading to the decision, and the lack of quality in that decision-making, demand that such an inquiry be held.

I believe that the Secretary of State has acted high-handedly and arrogantly towards the people of Britain, not only towards those in the Dorset area. The only respectable course open to him is to move towards a full inquiry which will bring some satisfaction to those in the industry and to the people of the country.

2.29 am
The Under-Secretary of State for Energy (Mr. Norman Lamont)

The hon. Member for West Bromwich, West (Miss Boothroyd) has raised an extremely important subject. She takes a close interest in the affairs of the British Gas Corporation and it is not surprising that she has alighted on this issue. It is not within my gift, but it is possible that there will be a full-scale debate on the Opposition prayer against the draft direction, which requires the BGC to dispose of its licence interest in Wytch Farm and which my right hon. Friend the Secretary of State has laid before Parliament. This debate at least gives me a chance to dispel some of the myths and misconceptions surrounding the Government's action. I regret to say that the hon. Lady repeated some of those myths.

It might be useful if I begin by filling in a little of the background to the present situation. The Wytch Farm licence is held jointly by BGC and BP, as the hon. Lady said. It has long been known that there are oil deposits in that area of Dorset. The licence to explore the Wytch Farm field dates back to the 1960s. Concentrated drilling effort and the discovery of significant reserves did not take place until 1973–74. Actual production commenced in March 1979 and 165,000 tonnes of oil was produced last year. Average production in 1980 was 3,000 barrels per day. This may well build up to 20,000 to 25,000 barrels per day by the late 1980s, although the final depletion profile has yet to be settled.

Therefore, although Wytch Farm is our largest known onshore field and makes a valuable contribution to our oil production, it is quite small compared with fields in the North Sea. However, as the hon. Lady emphasised, it is a valuable asset.

I turn to the factors underlying the action that the Government have taken. The Government's decision should come as no surprise to anyone. It is certainly not true, as the hon. Lady suggested, that the Government have no mandate to carry out this decision. We have always made it plain that we intend to reduce the size of the public sector wherever possible by transferring to the private sector activities which could equally well be performed there. The proceeds of hiving off such operations can also provide a useful contribution to the Government's overall economic strategy, by reducing the public sector borrowing requirement. But this is not the sole, or even the main, aim. We firmly believe that there is no reason why any activity which can perfectly well be done in the private sector should be retained by the public sector. We have pursued that aim in many areas. We have encouraged various nationalised industries to hive off peripheral activities into subsidiaries. The British Rail subsidiaries are a case in point. British Rail has hived off hotels, Sealink and Seaspeed. That is an example of a large industry that has hived off peripheral activities into a subsidiary. There is no reason why the energy sector should be any different.

We have made some progress towards privatisation in the energy sector, with our plans to privatise Amersham International and with the announcement made earlier today by my right hon. Friend the Minister for Consumer Affairs about the future of the corporation's retailing activities, which are to be transferred, over a period of time, to the private sector.

The hon. Lady asked whether I could recall an example of a Government selling off oil assets. I sat there racking my brain and trying to recall an example. I vaguely remember something about Newfoundland and its Government putting oil assets into a subsidiary. However, I do not know why I worked so hard. There is an example nearer to home. The hon. Lady may remember that the Labour Government sold some of their shares in BP. The hon. Lady may think that her analogy of being as threadbare as an outworn dishcloth is appropriate.

Miss Boothroyd

I spoke about oil wells, not shares.

Mr. Lamont

There does not seem to be a great difference of principle between selling oil wells and selling shares in them.

The Government's decision, after full consultation with the Gas Corporation and after careful consideration of its representations, to direct BGC to dispose of its interest in the Wytch Farm field licence is entirely consistent with the Government's fundamental policy objectives. It is very difficult to see why a publicly owned gas utility, whose main statutory duty is to supply gas to consumers as economically as possible, should be devoting its energy and resources to an activity like developing and operating an oilfield, particularly when this is a task which could easily, and indeed more naturally, be performed by the private sector.

The hon. Lady has asked about comparisons elsewhere in the world. I know of no other gas utility that has interests that are as extensive as those of the Gas Corporation. They extend from exploration and development in the North Sea right to the retailing of appliances in high street shops.

The reality, indeed, the problem, underlying such a widespread, extensive network of activities is that the bigger, more extensive and varied a State monopoly becomes, the more difficult it is for the Government to see whether it is efficient. Certainly profitability is no indicator of efficiency in a monopoly industry, especially where one is dealing with a corporation whose market situation is similar to that facing British Gas where there is an excess demand for the product. The only remedy is to check and reverse the ubiquitous spread of monopoly power by removing those activities which can and ought to be performed elsewhere and placing them in the private sector where they will have to be efficient to survive. That is what we are proposing to do with BGC's share in Wytch Farm.

I turn now to some of the more detailed of the various misapprehensions which, as I mentioned at the beginning of my speech, seem to surround this subject. First, a number of people, including the Gas Corporation, have stated that without the corporation's drive and determination oil would never have been found at Wytch Farm.

I am happy to join the hon. Lady in paying a tribute to the corporation's skill and professionalism in appraising and developing the field. It has been a job well done. BGC's partner in the field, to whom the hon. Lady paid tribute, BP, has an outstanding record of exploration in the North Sea arid elsewhere. I am sure that the House would find it difficult to believe that it would never have discovered or developed the full potential of the field. It must be clear to anyone who knows anything about the oil industry that drilling programmes are a matter of assigning priorities. Unlike BGC, the exploration and production activities of which are confined to the United Kingdom mainland and the continental shelf in the North Sea, BP has worldwide interests. It is true, as the hon. Lady said, that BGC pressed ahead. That is no reason to conclude that BP had abandoned or written off the field and would not have wished to sanction further drilling at a later stage.

The hon. Lady also paid tribute to the considerable environmental care that BGC has devoted to the field in a sensitive area. I agree with her. She is correct. The corporation has been very sensitive to the demands of the environment in an area that is of great importance. No doubt in deciding whether to approve the assignment of a licence that is a factor to which the Government will give due weight.

Secondly, as I have already suggested, our decision on Wytch Farm should be looked at not in isolation but in the context of the corporation's activities as a whole, and particularly its involvement in oil production. I have made it clear that it is the Government's view that there is no justification for BGC being involved in the development of oilfields on the scale which it presently is. For that reason, we raised with the corporation the possibility that is would group together some or all of its oil assets, offshore and onshore, into a new company in which the private sector could have been offered a majority holding. This company could have become a new and exciting British force in the development of our oil resources. A scheme was devised whereby 60 per cent. of the share capital of the Gas Council (Exploration Limited)—the corporation subsidiary which holds the oil interests—has been sold to the public, with the corporation retaining the remaining minority interest and continuing to manage the interests on behalf of the new public/private sector partnership.

We felt that this scheme was attractive, but we were not wedded to it in detail. The policy objectives which I have outlined are very clear, and if BGC had felt able to make alternative suggestions which met those objectives, we would certainly have been prepared to consider them. Unfortunately, however, the corporation has so far neither come up with its own scheme nor felt able to develop the plan which I have just outlined. This is a matter for regret. Even those such as the hon. Lady who are opposed to the sale of Wytch Farm may feel that the corporation's attitude to forming a subsidiary with its oil interests in it, into which private capital could have been attracted on a greater scale, has been over-negative. To have created a subsidiary with all the oil interests of the BGC in it would have enabled the Government to meet their objective of making a contribution towards the PSBR. That would have been a contribution not just from the proceeds of the sale but also from the savings on the future capital requirements for the future development of the corporation's oilfields.

What is clear is that the Government must now set the framework within which BGC should operate. We have therefore decided, having had this plan not accepted by the BGC, to press ahead with action on the Wytch Farm licence interest, which is a small onshore oilfield. This is entirely consistent with the Government's general policies and my right hon. Friend is, as I have said, satisfied that such a move will not impede British Gas in the proper discharge of its duties. The Government are still considering the question of BGC's other oil assets. This is a more complicated question than Wytch Farm, where there is only one partner. In its other oil interests BGC has a minority stake with a number of partners which are not necessarily the same in each case.

I have said that the proceeds of the sale of Wytch Farm will go to reduce the public sector borrowing requirement. No doubt some people will make the point that the amount realised by the sale will be small in relation to the PSBR. But it is our intention that this money should count towards the overall target for the disposal of public sector assets announced in the White Paper. That programme—£500 million in 1981–82—is significant. When taken as a whole, that sum is important. The proceeds from the disposal of oil assets or Wytch Farm within that total are obviously important too. It would be imprudent to speculate—the hon. Lady would not expect me to do so—on what their exact size would be, since they will be the result of commercial negotations, but it will clearly be a fairly large sum, and it will be a significant element, as I say, within the overall proceeds of such disposals.

There is no reason to suppose, as some have suggested, that the BGC will be unable to realise a good price for its share in the licence. The price achieved will be the result of commercial negotiations conducted by the corporation, and will depend on the BGC's effectiveness in these negotiations. But I may tell the hon. Lady—

The Question having been proposed after Ten o'clock on Wednesday evening, and the debate having continued for half an hour, MR. DEPUTY SPEAKER adjourned the House without Question put, pursuant to the Standing Order.

Adjourned at seventeen minutes to Three o'clock am.